=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: September 11, 1995
(Date of earliest event reported)
ALLIANCE GAMING CORPORATION
a Nevada corporation
(Exact name of registrant as specified in its charter)
Nevada 0-4281 88-0104066
(State or other (Commission (I.R.S.Employer
jurisdiction of File No.) Identification
incorporation of No.)
organization)
4380 Boulder Highway
Las Vegas, Nevada 89121
(Address of principal executive offices, including zip code)
(702) 435-4200
(Registrant's telephone number, including area code)
=================================================================
<PAGE>ITEM 5. OTHER EVENTS
As previously reported in its Schedule 14D-1 and
Amendment No. 2 to Schedule 13D (as amended), dated July 28,
1995,
on July 28, 1995 Alliance Gaming Corporation (the "Company")
commenced a tender offer to acquire up to 4.4 million shares of
common stock, par value $.01 per share, of Bally Gaming
International, Inc. ("BGII").
On August 25, 1995, as reported in the Company's press
release attached hereto as Exhibit 5.1 under Item 7 and
incorporated herein by reference, the Company announced that
pursuant to its previously announced August 14th agreement with
BGII and WMS Industries, Inc. ("WMS"), it had extended the
expiration of its currently pending tender offer for shares of
BGII until September 12, 1995. The number of shares validly
tendered did not include the one million shares already
owned by Alliance Gaming. Pursuant to such agreement, certain
litigation between the parties was temporarily suspended.
On September 1, 1995, as reported in the Company's
press release attached hereto as Exhibit 5.2 under Item 7 and
incorporated herein by reference, the Company announced it had
accepted firm commitments for $65 million in financing to fund
its tender offer of $12.50 cash per share for 4.4 million shares
of BGII. The financing commitments included $35 million in
senior financing to be provided by Foothill Capital Corp., and
$30 million in senior subordinated financing to be provided by
Cerberus Partners, L.P. and affiliates of Canyon Partners,
Incorporated. These commitments replaced the expressions of
interest furnished to the Company earlier by two banks. The
financing is not conditioned on due diligence, and the Company
therefore expects to be in a position to close its tender offer
immediately following regulatory approval, presently anticipated
to occur in the end of September. Accordingly, the Company has
extended its tender offer until 12 o'clock midnight New York
time on Friday, September 29, 1995. Upon closing the tender
offer, the Company would have majority control of BGII. No
additional funds would be necessary to consummate the merger.
<PAGE> On September 5, 1995, BGII commenced a litigation
against the Company and the Company's wholly-owned subsidiary,
BGII Acquisition Corp. ("Acquisition"), in the United States
District Court for the District of Delaware alleging, among
other things, certain misrepresentations under the federal
securities laws. A copy of such Complaint is filed as Exhibit
5.3 under Item 7 and incorporated herein by reference.
On September 6, 1995, WMS commenced a litigation
against the Company, Acquisition and the board of directors of
the Company and John Does 1-5 in the United States District
Court for the Southern District of New York alleging certain
misrepresentations and similar causes of action to the Delaware
litigation as well as tortious interference with the WMS/BGII
merger agreement. A copy of such complaint is filed as Exhibit
5.4 under Item 7 and incorporated herein by reference.
The Company believes that neither of these litigations
is meritorious, and it intends vigorously to defend them to
monitor developments and continue its pursuit of acquiring BGII.
-2-
<PAGE>ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
1. Exhibit 5.1. Press release dated August 25, 1995.
2. Exhibit 5.2. Press release dated September 1, 1995.
3. Exhibit 5.3. Complaint between BGII as plaintiff, and the
Company and BGII Acquisition Corp. as defendants, dated
September 5, 1995.
4. Exhibit 5.4. Summons in a Civil Action between WMS
Industries, Inc. as plaintiff, and the Company, BGII
Acquisition Corp. and the Company's Board of Directors as
co-defendants dated September 6, 1995.
-3-
<PAGE> SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
ALLIANCE GAMING CORPORATION
Date: September 11, 1995 By: /s/ Steve Greathouse
--------------------------
Name: Steve Greathouse
Title: Chairman/President/
Chief Executive
Officer
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<PAGE> INDEX TO EXHIBITS
1. Exhibit 5.1. Press release dated August 25, 1995.
2. Exhibit 5.2. Press release dated September 1, 1995.
3. Exhibit 5.3. Complaint between BGII as plaintiff, and the
Company and BGII Acquisition Corp. as defendants, dated
September 5, 1995.
4. Exhibit 5.4. Summons in a Civil Action between WMS
Industries, Inc. as plaintiff, and the Company, BGII
Acquisition Corp. and the Company's Board of Directors as
co-defendants dated September 6, 1995.
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<PAGE>
Exhibit 5.1
CONTACTS:
Media: Investors: Andrew Baer
Johnann McIlwain John Alderfer Josh Pekarsky
Alliance Gaming Alliance Gaming Kekst and Company
(702) 435-4200 (702) 435-4200 (212) 593-2655
FOR IMMEDIATE RELEASE
ALLIANCE GAMING EXTENDS BALLY GAMING TENDER OFFER
LAS VEGAS, NEVADA, August 25, 1995 -- Alliance Gaming Corporation
(NASDAQ:ALLY) announced today that pursuant to its previously
announced August 14th agreement with Bally Gaming International,
Inc. and WMS Industries, Inc., it has extended the expiration of
its currently pending tender offer for shares of Bally Gaming
until September 12, 1995.
As of 12:00 midnight New York time, August 24, 1995, 1,296,659
shares had been validly tendered into the offer. This does not
include the one million shares already owned by Alliance Gaming.
<PAGE>
Exhibit 5.2
CONTACTS:
Media: Investors: Andrew Baer
Johnann McIlwain John Alderfer Josh Pekarsky
Alliance Gaming Alliance Gaming Kekst and Company
(702) 435-4200 (702) 435-4200 (212) 593-2655
FOR IMMEDIATE RELEASE
ALLIANCE GAMING RECEIVES FIRM FINANCING COMMITMENTS
TO FUND BALLY GAMING OFFER
-- No Longer Requires Due Diligence to Complete Offer --
LAS VEGAS, NEVADA, SEPTEMBER 1, 1995 -- Alliance Gaming
Corporation (NASDAQ:ALLY) announced today that it has accepted
firm commitments for $65 million in financing to fund its tender
offer of $12.50 cash per share for 4.4 million shares of Bally
Gaming International, Inc. This financing is not conditioned on
due diligence, and Alliance therefore will be able to close its
tender offer immediately following regulatory approval, which it
anticipates obtaining by the end of September. Accordingly,
Alliance is extending its tender offer until 12 o'clock midnight
New York time on Friday, September 29, 1995. The number of
shares currently tendered is approximately 1,000,000. Upon
closing the tender offer, Alliance Gaming will have majority
control of Bally Gaming and expects to complete the subsequent
merger of the two companies by Thanksgiving. No additional funds
will be necessary to consummate the merger.
As announced previously, Alliance Gaming is prepared to raise its
offer to $13.00 cash per Bally Gaming share if the Bally Gaming
break-up fee arrangement with WMS is invalidated.
The financing commitments include $35 million in senior financing
to be provided by Foothill Capital Corp., and $30 million in
senior subordinated financing to be provided by Cerberus
Partners, L.P. and affiliates of Canyon Partners, Incorporated.
These commitments replace the expressions of interest furnished
to Alliance earlier by two banks.
Steve Greathouse, Alliance's Chairman and Chief Executive
Officer, stated, "Our ability to obtain firm financing
<PAGE>commitments not conditioned on due diligence demonstrates the
overwhelming economic and business rationale for our combination
with Bally Gaming."
Alliance also outlined in a letter mailed today to Bally Gaming
shareholders why it believes its offer is superior to the lower-
value, more conditional and less timely WMS proposal that has
been embraced by Bally Gaming's directors.
The full text of the letter follows:
September 1, 1995
Dear Fellow Bally Gaming Stockholder:
We are pleased to report that, despite the continued resistance
of the Bally Gaming board of directors, Alliance has continued
advancing toward our goal of acquiring Bally Gaming and
delivering superior and immediate value to our fellow
stockholders.
We have just accepted $65 million in firm financing commitments
to provide all the funding we need to close our $12.50 cash offer
for $4.4 million shares of Bally Gaming common stock. These
commitments are not conditioned on any due diligence concerning
Bally Gaming and do not require any cooperation from Bally
Gaming's management.
Furthermore, we anticipate obtaining all regulatory approvals
required to close our tender offer by the end of September and
delivering cash for the shares purchased immediately thereafter.
Accordingly, we have extended our tender offer to September 29,
1995. At that time, we will have majority control of Bally
Gaming and we expect to complete the merger of the two companies
by Thanksgiving. We can then execute our strategic plan to
capitalize on Bally Gaming's unrealized long-term potential.
We believe the table below dramatically shows the superiority of
our offer over the lower-value, more conditional and less timely
WMS proposal embraced by Bally Gaming's directors:
Alliance WMS
-------- ---
. $12.50 cash offer for $4.4 . WMS stock for all
million shares -- $13.00 if Bally shares; possible small
Gaming's break-up fee arrangement cash distribution, if
with WMS is invalidated; Alliance any, conditioned on
stock for the remainder potential sale of Bally
Wulff above a specified
price
-2-
PAGE
<PAGE>
. Cash tender offer to be . No plan to close before
completed by September 29; back- January 31, 1996 (as set
end merger by Thanksgiving forth in the WMS-Bally
Gaming Merger Agreement);
regulatory application
not anticipated to be
heard before November
. Subject only to customary . Conditioned on sale of
conditions Bally Wulff for a set
minimum price
. Back-end exchange ratio not . Exchange ratio fixed up
set until merger, subject to an front; Bally stockholders
appropriate collar; Bally Gaming bear the risk of WMS
stockholders significantly pro- stock price fluctuation
tected against Alliance stock
price fluctuations
. Continuous unlimited Nevada . Regulatory uncertainty;
gaming license for 25 years received only two-year
limited gaming license
Another important factor to consider is the value of the stock
that makes up part of our offer. We are primarily a
technology-driven company. As the country's largest gaming
device route operator, we own and operate over 5,700 gaming
devices, including our own highly sophisticated, proprietary
machines. This route generates consistent and strong annual
recurring cash flow, primarily from multi-year contracts with
established businesses in prime locations.
With this stable cash flow as our base, we are very confident
that once we have acquired Bally Gaming we can quickly and easily
achieve an appropriate capital structure favorable to the
long-term growth and profitability of the combined companies.
This will enable us to take advantage of our superior
technological resources and vision to rapidly bring to market
advanced gaming devices and systems.
As for WMS, it has managed to obtain only a two-year probationary
license to sell gaming devices in Nevada, despite its plea to the
Nevada Gaming Control Board that "the company's future business
would be severely limited" by such a time-restricted license (p.
161, Gaming Control Board hearing transcript, 8/9/95). This
means that two years from now, WMS will have to again submit to a
full regulatory review with no guarantee of approval. Thus,
having sold off Bally Gaming's highly profitable international
business -- and having given up Bally Gaming's existing unlimited
-3-
PAGE
<PAGE>
license -- the company could find itself, just two years from
now, barred from its largest domestic gaming market.
You should also know that in addition to its two-year gaming
license to do business in Nevada, WMS needs a separate change of
control approval before it can acquire Bally Gaming. In August,
WMS revealed before the Gaming Control Board that it expects this
change of control application to be considered by the Board "in
three, four [or] five months." Thus, based on its own
statements, WMS expects to complete the regulatory approval
process sometime between November 1995 and January 1996. Because
of this lengthy interval, Bally Gaming stockholders will bear the
risk of future fluctuations in the WMS stock price. Consider
that the value of the WMS stock consideration has fluctuated
between $12.86 and $10.04 per Bally Gaming share since the letter
of intent was announced on April 18, 1995.
Finally, you should remember that in the announcement of its
initial letter of intent with Bally Gaming, WMS stated that it
would exchange 0.6 of its shares or higher for each Bally Gaming
share. Instead, it lowered its offer. Other than for our
presence, there is no guarantee they won't do it again.
Why would Bally Gaming's directors favor the inferior WMS offer?
Self-interest may be at work here. Bally Gaming has disclosed
that in connection with the proposed WMS merger, its three senior
executives will receive in the aggregate at least $15 million in
severance and other compensation. It is also worth noting that
Bally Wulff is likely to be sold to a group of Bally Gaming's own
directors.
Now that we have secured financing, we expect to close our offer
by the end of September. We are prepared to seek your consent to
remove Bally Gaming's directors should they continue to oppose
our offer.
Approximately 1,000,000 shares have been tendered into our offer
not including the one million shares we already own. If you have
not already done so, please tender your shares into the Alliance
Gaming offer so that we can continue to move forward. We look
forward to your continued support.
-4-
<PAGE>If you have any questions, please call Georgeson & Company Inc.
at (800) 223-2064.
Yours sincerely,
Steven Greathouse
Chairman, President and Chief Executive
Officer
-5-
<PAGE>
EXHIBIT 5.3
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
BALLY GAMING INTERNATIONAL, INC., )
)
Plaintiff, )
)
v. ) C.A. No. 95-538
)
ALLIANCE GAMING CORPORATION )
and BGII ACQUISITION CORP., )
)
Defendants. )
COMPLAINT
---------
Plaintiff Bally Gaming International, Inc., by its
undersigned attorneys, complaining of defendants, alleges as
follows:
Introduction and Summary
------------------------
1. The shareholders of plaintiff Bally Gaming
International, Inc. ("Bally") and the securities markets have
been falsely led to believe by defendants Alliance Gaming
Corporation ("Alliance") and its wholly-owned subsidiary, BGII
Acquisition Corp. ("Bidder"), that the partial, hostile tender
offer they have made for shares of Bally (the "Alliance Offer")
is a first step in the acquisition of the entire equity interest
in Bally for the same consideration pursuant to a proposed future
merger. Alliance has played a game of "now you see it, now you
don't" with respect to the financing of its Offer, first assuring
Bally shareholders and the markets that financing was present in
PAGE
<PAGE>
one form, only to turn around later and present financing in
another, totally different form. The Bally shareholders and the
markets were also told at one point that Alliance planned to
solicit consents to elect a majority of Bally directors pledged
to support the Alliance Offer (assuming the Offer was adequately
financed), but they have since been told that the consent
solicitation may or may not take place.
2. In fact, the Alliance Offer was designed by
Alliance (the two defendants are sometimes collectively called
"Alliance") to be, and is, misleading, coercive and illusory, for
a variety of reasons. Concealed from Bally shareholders and from
the markets generally, among other things, are the facts that:
-- Alliance has an undisclosed principal,
Richard Rainwater, whose crucial role in
Alliance will cause embarrassment and
licensing difficulties for Rainwater and
Alliance.
-- Alliance is severely underfunded and
overleveraged, such that it will be unable,
once it acquires a majority of Bally stock
and once it is combined with Bally, to cause
Bally to repay substantial indebtedness that
will immediately come due, to issue stock of
real value in a back-end merger or to go
forward as a viable company.
-- Alliance's so-called tender offer is not
designed to permit Alliance to acquire all
shares of Bally at the same price, but is
instead a vehicle to permit Alliance to
attempt to interfere with and disrupt the
merger agreement that has been entered into
between Bally and WMS Industries, Inc.
("WMS"). Uncertainties concerning the back-
end merger will have the effect of coercing
shareholders into tendering their stock to
Alliance even if they would prefer the merger
with WMS. If sufficient Bally stock is
tendered to Alliance to permit it to replace
the directors of Bally with its own
designees, they will then "negotiate" a
merger agreement on Alliance's terms.
-2-
<PAGE> -- The centerpiece of Alliance's on-again, off-
again consent contest is the false appearance
that Alliance has made a desirable offer for
Bally that Bally's directors have improperly
rejected, and as a result, Alliance must
conceal the fact that it has received
extraordinary cooperation from Bally's board.
3. Alliance and the Bidder have made several public
statements and have filed and caused to be publicly disseminated
a Schedule 14D-1 (the "14D-1/Proxy Statement"), that purport to
make certain disclosures about the Alliance Offer, Alliance and
Bally. Because the Offer is the first step in a consent and/or
proxy solicitation, the 14D-1/Proxy Statement must also be
treated as a proxy statement subject to the appropriate laws and
regulations.
4. In furtherance of defendants' aforesaid plan, the
statements and the 14D-1/Proxy Statement have knowingly been
crafted so as to be at the time they were made replete with
misrepresentations and omissions, detailed below, on the subjects
of:
(a) the interests behind Alliance;
(b) the financing for its Alliance Offer;
(c) the financial condition of a combined
Alliance/Bally entity;
(d) Alliance's plans for Bally, including
the likelihood of a proxy contest and
the terms of any future merger between
Alliance and Bally;
(e) the history of Alliance's negotiations
with Bally, including the opportunities
afforded to Alliance to conduct due
diligence of Bally;
(f) the obstacles to a rapid Alliance/Bally
combination, including regulatory approvals and a
non-competition agreement to which Bally is party;
and
(g) the proposed WMS merger.
5. In addition, Alliance, acting through the Bidder,
has filed a preliminary consent statement (the "Preliminary
Consent Statement") that is available to the public that contains
misrepresentations and omissions on many of the same subjects as
the 14D-1/Proxy Statement, and additionally omits other
information crucial to the Bally shareholders to whom it is
addressed, such as any information at all about the WMS merger
-3-
<PAGE>agreement. Alliance has also mailed a letter soliciting consents
to Bally shareholders (the "August 8 Letter"). The Preliminary
Consent Statement and the August 8 Letter also contain
misstatements and omissions. Finally, Alliance made certain
announcements and mailed an additional letter to Bally
shareholders on September 1, 1995 (the "September 1
Announcements") that substantially alter certain of Alliance's
earlier "disclosures", and repeat and re-embellish many of its
misrepresentations.
6. By reason of these misstatements and omissions,
defendants have violated sections 14(d) and (e) of the Securities
Exchange Act of 1934 (the "Exchange Act") and Regulation 14D
promulgated by the Securities and Exchange Commission (the "SEC")
thereunder, and they should be required to make corrective
disclosures before proceeding with their offer. Moreover,
because Alliance is preserving the possibility that it may be
engaging in a consent solicitation that involves both the
election of directors and a decision as to a merger, it
is in violation of section 14(a) of the Exchange Act and
Regulation 14A thereunder, because it is soliciting proxies
without having properly filed the requisite statements, and
pursuant to a false and misleading proxy statement.
Jurisdiction and Venue
----------------------
7. Jurisdiction is conferred on this Court by the
provisions of 28 U.S.C. Sections 1331 and 1337 and 15 U.S.C.
Section 78aa.
8. Venue is proper in this Court pursuant to 28
U.S.C. Section 1391 and 15 U.S.C. Section 78aa.
Parties
-------
9. Bally is incorporated under the laws of Delaware
and has its principal place of business in Las Vegas, Nevada.
Bally's main business is the design and manufacture of electronic
gaming machines.
10. Alliance is incorporated under the laws of Nevada
and has its principal place of business in Las Vegas, Nevada.
Alliance owns, operates, installs, manages and services gaming
devices and operates two casinos.
-4-
<PAGE> 11. The Bidder is incorporated under the laws of
Delaware, has its principal place of business at Alliance's
principal office, was organized for the sole purpose of making
the Alliance Offer and has conducted no other business.
Background
----------
Alliance
--------
12. Several years ago, Alliance (then known as United
Gaming) was taken over by investors led by Richard Rainwater with
the intention of using Alliance as a vehicle to make acquisitions
in the gaming industry. For reasons detailed below, these
principals of Alliance, although they dominate the company, are
unwilling or unable to be publicly identified as controlling a
gambling enterprise, and accordingly, upon information and
belief, embarked upon a scheme to accomplish their ends without
complying with gaming licensing regulations. To that end, these
principals have pushed Joel Kirschbaum to the fore as their sole
identified representative, while they have falsely described
themselves as passive, limited partners. They have not, however,
conducted themselves as passive investors.
13. Recently, Alliance raised approximately $85
million in an offering of convertible debt securities. The
purpose of the offering was to finance expansion through
acquisitions, and Alliance announced (as reflected in
contemporaneous research reports) that its ability to complete
such transactions was enhanced by the presence among its leading
investors of Rainwater and Kirschbaum, who had reputations
respectively as an aggressive doer of deals and a successful
investment banker. To date, however, Alliance has failed to
invest the proceeds of the offering, and, upon information and
belief, is having difficulty servicing its bonds, which trade at
a substantial discount. In order to salvage both its finances
and its reputation, Alliance is desperate to do a deal with
Bally.
Negotiations
------------
14. Between one and two years ago, Bally's directors
concluded that in order for Bally to achieve its potential it
would need to find a strategic partner, either to invest
additional equity capital in Bally or to combine with it
synergistically. Management was instructed to seek out such a
partner, and the performance criteria of senior management's
-5-
<PAGE>incentive compensation were adjusted to reflect these new
objectives.
15. Alliance is one of the companies with whom Bally
has explored a possible combination. Alliance representatives
have frequently met with Bally's directors, officers, operating
personnel, lawyers and investment bankers, and have been given
the free opportunity to ask questions about Bally and obtain
limited non-public information.
16. Alliance has repeatedly sought to acquire
additional non-public information from Bally, which it has told
Bally it needs in order to obtain financing for a business
combination. Indeed, Alliance representatives have told Bally on
several occasions that Alliance cannot obtain financing to
undertake a hostile takeover of Bally.
17. Despite its desire to acquire additional non-
public information about Bally, Alliance has steadfastly declined
and refused to enter into the standard confidentiality/stand-
still agreement that Bally has requested in return. The
agreement Bally proffered to Alliance is substantially identical
to the agreement it proffered to WMS, and that was in fact signed
by WMS before it obtained any non-public information about Bally.
18. Instead, Alliance claimed to be concerned that
Bally did not truly want to enter into a major transaction, a
fear it purported to retain even as events demonstrated Bally's
seriousness. Accordingly, Alliance insisted on retaining its
ability to "protect itself" and to make a hostile offer for Bally
in certain circumstances. Bally has objected to this tack,
noting both (i) that it is not customary for one company to seek
the assistance of another company's directors in procuring non-
public information needed to evaluate a possible transaction and
obtain financing for that transaction and still preserve its
option to go over the directors' heads; and (ii) that Alliance's
insistence was inconsistent with its repeated representations
that it could not, in any event, accomplish a hostile takeover.
19. At certain points in the negotiations, Rainwater
took an active role, at one point acknowledging that Alliance's
position on a stand-still agreement has been irrational, and
pledging to cause Alliance to enter into a standard stand-still
agreement.
20. At one dinner meeting, Rainwater and other
Alliance representatives shook hands with Bally representatives
on a deal pursuant to which Alliance would have paid $13.00 per
-6-
<PAGE>share for Bally. In addition, Rainwater promised to strengthen
the balance sheet of the combined entity by providing a new
equity investment of approximately $50 million.
21. The following day, however, after a formal
presentation made to Bally's board, in which Rainwater stressed
his strategic vision for the combined companies and his record as
a successful investor, Rainwater advised Bally that he was not
prepared to commit himself to such an investment.
22. On April 17, 1995, as Bally publicly announced, it
entered into a letter of intent with WMS providing for a period
during which Bally would consider no transactions other than one
with WMS. That period expired 25 days after execution of the
letter of intent, however, and although Bally announced it would
continue to work toward a merger agreement with WMS, it
confirmed, in response to an inquiry from Alliance, that the
exclusivity period had ended. Not until several weeks later --
when Bally and WMS had virtually completed their negotiations --
did Alliance again propose a deal to Bally.
23. Even at that late date, Bally wanted to be sure
that Alliance had every opportunity to present its position to
Bally. To that end, a combination meeting/conference call was
held involving the senior representatives of Bally and Alliance,
including the chief executives of both companies, at which
Alliance strenuously argued that its deal was in Bally's best
interests.
24. One matter that was of great concern to Bally was
the nature of Alliance's financing commitments -- especially
given Alliance's history of losses and existing high leverage.
Bally told Alliance that it anticipated that negotiations with
WMS would soon reach fruition, and that Bally needed to know how
firm or contingent Alliance's financing was in order to permit it
rationally to compare the two proposals and not put the more
secure one at risk. Originally, Alliance told Bally that it had
two banks lined up, but refused to name them unless Bally agreed
to pay Alliance $700,000 in the event no Alliance/Bally
transaction occurred. Bally declined so to commit itself.
25. Thereafter, Bally learned the identity of
Alliance's banks when Alliance publicly disclosed it in a
misleading letter and press release that dramatically understated
the conditional nature of the banks' commitments. Bally
immediately asked to meet with the banks in order to assess their
commitment and ascertain whether the banks were aware of and had
considered certain specific due diligence issues that WMS had
already considered and incorporated into its offer. Alliance
-7-
PAGE
<PAGE>
refused to permit such a meeting unless Bally permitted the banks
at the same time to obtain such additional non-public information
as they might desire.
26. Despite this unsettling uncertainty about
Alliance's financing, when Bally's Board met on June 21, 1995, to
consider the alternatives available to Bally, it decided to treat
the Alliance proposal as if the needed financing were absolutely
secure. Nonetheless, after extensive analysis and advice from
experts, the Board concluded that the WMS proposal was superior
to the Alliance proposal, financially and otherwise, and in the
better interest of shareholders, and it voted unanimously (with
one abstention) to execute a merger agreement with WMS. This was
done immediately following the vote.
27. Thereafter, contradicting Alliance's assurances to
Bally and to the public that its financing commitments were firm
subject only to due diligence concerning Bally, the Schedule 13D
filed by Alliance on June 28, 1995 and its exhibits revealed that
the "commitments" were subject also to due diligence of Alliance
itself and, more importantly, to Alliance's obtaining commitments
from other sources for permanent financing to replace the
financing in question.
The WMS Merger Agreement
------------------------
28. The agreement between Bally and WMS provides for
the stockholders of Bally to receive for each outstanding share
of Common Stock of Bally, 0.55 shares of Common Stock of WMS.
29. The agreement provides that prior to the
consummation of the merger, Bally must either sell its German
operations for net proceeds of at least $55 million or must
recapitalize the German operations and distribute the equity of
those operations to Bally stockholders in a manner that would
permit Bally to be debt-free at the time of the merger with WMS.
Bally's stockholders will be entitled to receive, in addition to
the 0.55 shares of WMS stock, any amounts in excess of $55
million realized by Bally if the German operations are sold, or
shares of the German operations if they are spun off.
30. The WMS merger agreement contemplates a Bally
shareholder meeting in late October 1995 at which the
shareholders will be asked to approve the merger and the sale or
spinoff of the German operations, as well as to elect directors.
It is anticipated that the merger will close in January 1996,
after the expiration of a non-competition agreement to which
Bally is party.
-8-
<PAGE> The Alliance Offer
------------------
31. On July 25, 1995, Alliance announced that it would
commence a tender offer for sufficient shares of Bally to give it
a majority when added to the 9.3% it already owned. Alliance's
announcement named the two banks that it said had "indicated they
are interested" in financing the offer, "subject, among other
conditions, to satisfactory due diligence."
32. Alliance further announced:
In a follow-up merger of the two companies
after the tender offer, each Bally Gaming
share will be acquired in exchange for
Alliance stock valued at $12.50 per Bally
Gaming share. The exact number of Alliance
shares to be exchanged for each Bally Gaming
share will be determined by averaging the
closing price of Alliance shares during a ten
day trading period ending five trading days
prior to the merger, subject to an
appropriate collar.
(emphasis supplied.)
33. The announcement further stated that Alliance had
commenced litigation in Delaware to enjoin, among other things,
progress on the merger agreement between Bally and WMS. In that
connection, Alliance quoted its chief executive officer, Steve
Greathouse, as saying:
Our bid is clearly superior to the WMS bid,
which was so hastily accepted last month by
Bally Gaming's Board. It is unfortunate that
we have had to go to such extraordinary
lengths just so we can receive the same basic
access to information as was given by Bally's
Gaming Board to WMS, in order for us to
consummate the transaction that is better for
Bally Gaming shareholders.
* * *
We think we can enhance Bally Gaming's
operations and growth, so we're interested in
acquiring the company. At the same time, as
one of the major shareholders in Bally
Gaming, we're interested in having the
company sold to the highest bidder. The
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objective of electing independent directors
will be to facilitate the highest offer for
Bally Gaming's share, no matter whom it comes
from.
34. On July 27, 1995, as it publicly announced on the
same day, Alliance asked the Delaware Court to require Bally to
hold promptly an election for directors and to order that such
election "not be coupled with a vote of the proposed WMS
Industries merger". In that connection, Alliance represented to
the Court that it "absolutely" intended to conduct a proxy
contest with respect to the election of Bally directors. It said
nothing about conducting a consent solicitation. Upon
information and belief, Alliance has solicited various
shareholders of Bally to support its demand for due diligence of
Bally, which is, in effect, a solicitation of consents or proxies
by Alliance to support an Alliance slate of directors and/or a
merger with Alliance.
35. On July 28, 1995, Alliance commenced its Offer by
filing and disseminating the 14D-1/Proxy Statement.
The Consent Solicitation
------------------------
36. On August 8, 1995, Alliance publicly announced its
intention to solicit the consent of Bally shareholders to elect a
majority of Bally directors. Upon information and belief, it had
been Alliance's intention for at least several weeks to conduct a
consent solicitation.
37. The directors to be elected would be committed,
inter alia, to permitting Alliance to conduct due diligence of
Bally, and to accepting Alliance's Offer if they are "satisfied
with Alliance's financing." While the new directors would also,
according to Alliance, be committed to evaluate "any other offer
or revised offer providing greater value to Bally stockholders",
it is clear that they will not approve the merger with WMS if
they conclude that Alliance has adequate financing. No other
condition beyond financing to the directors' approval of the
Alliance Offer was stated to exist.
38. Also on August 8, Alliance filed the Preliminary
Consent Statement with the SEC and mailed the August 8 Letter
soliciting consents to Bally shareholders. The Preliminary
Consent Statement stated Alliance's intention of removing four of
Bally's directors and replacing them with four "independent"
directors (to be named later) pledged to a "program" of:
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(i) permitting Alliance and its
representatives to conduct a due
diligence review of Bally;
(ii) approving the Alliance Offer and
taking action to expedite the
consummation of the Offer and the
proposed back-end merger, if they
are "satisfied with the level of
financial commitment provided by
Alliance";
(iii) otherwise, resigning and permitting
the remaining three Bally directors
to proceed with the WMS merger; and
(iv) evaluating and facilitating any
"other offer or revised offer
providing greater value to
[Bally]'s stockholders".
39. The Preliminary Consent Statement stated that the
Alliance slate also proposed to repeal certain unspecified Bally
by-laws that "would adversely affect or impede" Alliance's
program. Alliance conceded that it is unaware of any such by-
laws, but darkly suggested that some may have been, or might in
the future be, secretly adopted.
40. The Preliminary Consent Statement discussed the
proposed back-end merger in the same terms as Alliance's July 25
announcement described above. The August 8 Letter summarized the
program and claimed that the purpose of the consent solicitation
was "to level the playing field."
The Moratorium Agreement
------------------------
41. On August 14, 1995, Bally, WMS and Alliance
entered into an agreement (the "Moratorium") pursuant to which
Alliance would not pursue implementation of its consent
solicitation, or solicit proxies, until September 1, 1995.
Alliance also agreed to extend its Offer until September 12,
1995, and the parties agreed to solicit neither tenders to the
Offer nor rejections of the Offer until September 1, 1995.
42. The Moratorium also provided that Bally and WMS
would not institute or threaten legal action against Alliance
until September 1, 1995, and that in the event Bally or WMS
instituted legal action on or after September 1, Alliance would
raise no objection based on the delay.
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43. On August 25, 1995, pursuant to the Moratorium,
Alliance extended the expiration date of its Offer to September
12, 1995. At the same time, Alliance announced that some 1.3
million shares of Bally stock had been tendered into the Offer.
The September 1 Announcements
-----------------------------
44. On or about September 1, 1995, Alliance issued an
announcement, filed an amendment to the 14 D-1/Proxy Statement
and mailed a letter to shareholders that, in essence, conceded
that the bridge facility it had previously touted as being a firm
financing commitment was, in fact, no such thing. Alliance was
now completely abandoning this facility (for which it had paid
handsomely) and substituting for it loans from three totally new
sources that were said to be really, truly firm this time -- not
even dependent on due diligence.
45. The September 1 Announcements trumpeted that
Alliance intended to close the Offer "immediately after
regulatory approval is obtained, which Alliance anticipates will
occur by the end of September", thus delivering "superior and
immediate" value to Bally shareholders. Alliance added that it
proposed to complete its back-end merger with Bally "by
Thanksgiving." Alliance also extended its Offer until September
29, noting that approximately one million shares had been
tendered into the Offer.
46. The September 1 Announcements also explained that,
for the moment, Alliance did "not currently intend to proceed
with its consent solicitation", but that it was "prepared to
pursue its consent solicitation . . . if [Bally's directors]
continue to oppose the Offer."
47. Finally, the September 1 Announcements contained a
table that purported to show the superiority of the Offer to the
WMS Merger on a variety of bases, including speed and certainty.
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Misrepresentations and Omissions
in the 14D-1/Proxy Statement and Related Documents
--------------------------------------------------
Interests Behind Alliance
-------------------------
48. Section 9 of the 14D-1/Proxy Statement, "Certain
Information Concerning the Purchaser and Alliance," disclosed
that:
Alliance may be deemed to be controlled by
Kirkland Investment Corporation, a Delaware
corporation ("KIC"), which holds a
substantial amount of Alliance stock and
warrants. KIC's principal business is acting
as the general partner of Kirkland-Ft. Worth
Investment Partners, L.P., a Delaware limited
partnership engaged in making investments
("KFW"). On June 23, 1994, KIC was approved
by the Nevada Commission (as defined in
Section 15) to acquire control of Alliance
and is deemed by the Nevada Commission to be
a controlling person of Alliance. KIC
currently has the right, pursuant to a
stockholders agreement, to designate a
majority of Alliance's board of directors.
Joel Kirschbaum, a director of and consultant
to Alliance, is the sole stockholder, officer
and director of KIC.
49. Alliance has nowhere disclosed that the power (and
money) behind KIC's investment in Alliance is Rainwater, who is
upon information and belief a direct or indirect limited partner
of KFW. Indeed, the Dallas Morning News has reported that
Rainwater and KFW control Alliance through a $5 million
investment. Upon information and belief, the other limited
partners of KFW are friends and associates of Rainwater, and
Rainwater's role at Alliance has been touted to Wall Street
professionals. The statements in the 14D-1 are intentionally
designed to conceal Rainwater's involvement in Alliance, as
Alliance has informed Bally, because Rainwater is a part owner of
the Texas Rangers baseball team, and major league baseball takes
a dim view of baseball owners' having any ownership interest in
any type of gambling enterprise.
50. During the 1994 Texas gubernatorial campaign of
George W. Bush, Rainwater's position in both baseball and
gambling became an issue. It was reported in the Dallas Morning
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News that major league baseball was investigating a possible
violation by Rainwater of baseball's ownership guidelines.
51. At that time, Rainwater professed that his
interest in Alliance (then known as United Gaming) was "passive
and small". However, in November 1993, Institutional Investor
reported that Rainwater saw gambling as "one of the most
interesting longterm businesses", and was planning "to build up
United [Gaming], add to its capital in return for equity, and
'become a really large factor in this industry.'" More recently,
in April 1995, Forbes reported that Rainwater's wife, Darla
Moore, had been put "in charge" of "running" Rainwater's assets,
and as part of that job, was "dismantling" Alliance. Rainwater
has also told Bally that he is personally interested and involved
in the Alliance approaches to Bally; he was present at a Bally
board meeting where Alliance cannot consummate a hostile takeover
of Bally. Bally's shareholders are entitled to know whether the
principal behind Alliance's controlling shareholder is an active
or passive investor, and what his role is in the Offer.
52. Moreover, given the substantial and key nature of
Rainwater's investment in Alliance, Bally's shareholders are
entitled to know whether Rainwater has plans to disinvest.
During 1994, Rainwater was several times quoted as saying that if
baseball ruled that his ownership interest in Alliance conflicted
with his interest in the Rangers, he would divest himself of
Alliance. This is nowhere disclosed in the 14D-1/Proxy
Statement. Rainwater's role in Alliance also has a crucial
impact on the likelihood of Alliance securing regulatory approval
to acquire Bally (see below).
Financing the Offer
-------------------
53. Section 10 of the 14D-1/Proxy Statement, "Source
and Amount of Funds", contained the following:
The amount of funds required to purchase
4,400,000 Shares pursuant to the Offer is
$55,000,000. The Purchaser estimates that
the total amount of funds required to
purchase 4,400,000 Shares pursuant to the
Offer, to refinance certain existing debt of
[Bally] and to pay fees and expenses related
to the Offer and the Proposed Merger will be
approximately $175,000,000. These funds are
expected to be provided from a combination of
(i) up to $25,000,000 from available cash on
hand of Alliance and (ii) $150,000,000 from
senior secured borrowings by Alliance
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pursuant to a senior bridge facility (the
"Bridge Facility").
The Bridge Facility. Bankers Trust Company
and Indosuez Capital (the "Banks") have
furnished a letter dated June 15, 1995
expressing interest (the "Proposal Letter")
in providing loans (the "Bridge Loans") under
the Bridge Facility which are to be made
available to Alliance in a principal amount
of $75,000,000 each in connection with a
tender offer for a number of Shares that
(when added to the Shares already owned by
Alliance) will constitute a majority of
Shares on a fully diluted basis and a
subsequent merger, on the general terms and
conditions outlined in the summary term sheet
attached to the Proposal Letter (the "Summary
Term Sheet").
* * *
The Proposal Letter provides that the
commitment of the Banks to provide the Bridge
Facility, if and when obtained, will contain
certain conditions, including among others:
(i) the Banks being satisfied with the
completion of their due diligence with
respect to [Bally] and their confirmatory due
diligence with respect to Alliance (the
Proposal Letter states that the Banks are
satisfied with the results of their due
diligence on Alliance to date);. . .(iv) the
Banks being satisfied in their sole
discretion with any arrangements regarding
the permanent financing necessary to
refinance the Bridge Facility.
* * *
The Banks have indicated that, as a condition
to providing the Bridge Loans and depending
on the outcome of their due diligence review
of [Bally], they may require Alliance to
obtain approximately $20,000,000 in equity
financing. At the time Alliance sent the
June 21 Letter described in Section 11, it
had obtained a commitment for such financing
conditioned on the transaction with [Bally]
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being a negotiated transaction. Alliance,
therefore, does not currently have a
committed source for such equity financing.
Alliance is highly confident, however, that
it can raise the necessary equity if any is
in fact required by the Banks after due
diligence.
(Emphasis supplied.)
54. The clear import of Alliance's public statements
through August, including those in the 14D-1/Proxy Statement, was
that Alliance had at the time assurances of sufficient financing
to consummate the Alliance Offer.
55. A careful analysis of the disclosures, however,
coupled with the statements made by Alliance to Bally concerning
its inability to finance a hostile offer, revealed that there was
no assurance at all of financing to consummate the Alliance Offer
in its present, hostile form.
56. Although Alliance summarized the conditions to its
being able to draw on the Banks' financing, it did not fully
explain them or explain how unlikely they were to be satisfied.
For example, Alliance did not clearly state that it was required
to have arranged permanent financing to replace the proposed
bridge financing before it could draw on the bridge financing (as
set forth in the "Takeout Financing" section of the Banks'
Summary Term Sheet in Exhibit (b) to the 14D-1/Proxy Statement),
but only that "any" arrangements that exist must be satisfactory
to the Banks. Alliance did not disclose even whether it had made
any efforts to line up takeout financing, or what the results of
such efforts had been. Finally, Alliance did not explain why it
was "highly confident" that it would be able to raise $20 million
in additional equity.
57. The result of all the foregoing was that, contrary
to the impression the 14D-1/Proxy Statement sought to foster,
there was no reasonable likelihood that Alliance would have the
financing to consummate a hostile Offer. The September 1
Announcements in effect conceded that all the above was true with
respect to the bridge facility described in the 14D-1/Proxy
Statement by utterly abandoning the bridge facility in favor of
completely new and different financing.
58. Given Alliance's history of hiding the ball with
respect to its financing, shareholders and the markets may still
justifiably be skeptical as to the true firmness of existing
commitments, including whether Alliance has accurately described
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to the new sources of financing the status of Bally indebtedness
that will immediately come due should Alliance consummate the
Offer (see below). The new financing is conditioned on, inter
alia, there being no material adverse changes in Bally's
financial condition.
Financial Condition of Alliance/Bally
-------------------------------------
59. Given the financial information about Alliance and
the Alliance Offer disclosed in the 14D-1/Proxy Statement --
$12.7 million of shareholder equity supporting $101 million of
debt now, and an additional $65 million of debt to be incurred in
the Offer at very high fees and interest -- and given that
Alliance has flatly represented that its Offer and proposed back-
end merger extend greater value to Bally shareholders than the
WMS merger, it is crucial that Bally shareholders be given a full
financial picture of the combined entity so that they can assess
the likelihood of a merger ever taking place, the likely value of
securities they would receive in such a merger, and the prospects
of the company in which they would become shareholders.
60. Nonetheless, the 14D-1/Proxy Statement contained
no pro forma financial statements for the combined companies, no
projections of what such statements might look like, and no
explanation of where the capital is to come from in order to
permit the combined entity to go forward. The reason for this
silence is that the financial condition of the combined companies
would be disastrous.
61. In particular, Alliance nowhere addresses the fact
that, pursuant to the Indenture governing approximately $40
million in outstanding Bally notes, the acquisition of 40% of
Bally's voting stock by any person -- such as Alliance's
consummation of its Offer -- would obligate Bally immediately to
offer to purchase its notes from their holders within sixty days
at 101% of the notes' principal amount plus accrued but unpaid
interest. Upon information and belief, the holders of the notes
consider that consummation of the Offer would trigger Bally's
obligation, and intend to enforce the obligation and accept the
offer to purchase the notes. Alliance says nothing of how Bally
will meet this financial burden once Alliance has acquired a
majority of its stock.
Alliance's Plans for Bally
--------------------------
62. Closely related to the issue of the financial
condition of the combined company is the crucial question of
Alliance's ability and intention to consummate a back-end merger,
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and the likely value of the securities to be offered to Bally
shareholders in such a merger.
63. Although its press release stated that the back-
end merger "will" take place, the 14D-1/Proxy Statement was not
so positive. In section 12, Alliance stated:
Alliance currently intends, as soon as
practicable following consummation of the
Offer, to propose and seek to consummate the
Proposed Merger. The purpose of the Proposed
Merger is to acquire all Shares not tendered
and purchased pursuant to the Offer or
otherwise. Pursuant to the Proposed Merger,
each then outstanding Share (other than
Shares owned by the [Bidder], Alliance or any
of their subsidiaries, Shares held in the
treasury of [Bally], and Shares owned by
stockholders who perfect any available
appraisal rights under the DGCL) would be
converted into the right to receive an amount
in shares of Alliance Common Stock (valued at
their average closing price for a period of
ten NNM trading days ending five NNM trading
days prior to the Proposed Merger, subject to
an appropriate collar) equal to the Offer
Price. Depending upon a number of factors,
Alliance may consider substituting cash in an
amount equal to the Offer Price for some or
all of the Proposed Merger consideration of
Alliance Common Stock.
* * *
The precise timing and other details of any
merger or other business combination
transaction will depend on a variety of
factors such as general economic conditions
and prospects, the future prospects, asset
value and earnings of [Bally], the number of
Shares acquired by the [Bidder] pursuant to
the Offer or otherwise, the receipt of the
necessary approvals or consents of gaming
regulators and the statutory requirements
described above. The [Bidder] can give no
assurance that a merger or other business
combination will be proposed or that, if it
is proposed, it will not be delayed or
abandoned. The [Bidder] expressly reserves
the right not to propose any merger or
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similar business combination involving the
[Bidder], or to propose a merger or other
business combination on terms other than
those set forth herein, and its ultimate
decision could be affected by information
hereafter obtained by the [Bidder], changes
in general economic or market conditions or
the business of Bally or other factors.
(Emphasis supplied.)
64. Alliance has not told Bally shareholders whether
the proposed merger "will", or only "may", take place. Moreover,
given the woeful financial condition of a combined Alliance/Bally
entity, Alliance owes it to the Bally shareholders to explain the
"appropriate collar" it says will be applied to the valuation of
Alliance stock to be offered to Bally shareholders if the back-
end merger does occur. Alliance has not disclosed that either
the collar will prevent the issuance of sufficient Alliance stock
to make that stock worth $12.50 per share, or so much Alliance
stock will have to be issued to Bally shareholders as to have an
overwhelmingly dilutive effect.
65. In its August 8 announcement of its consent
solicitation, moreover, Alliance promised that if its slate of
directors was elected, Alliance would not reduce the "$12.50
offer price or the percentage of cash it is offering." Alliance
did not waive its right to abandon, or modify the terms of, the
proposed back-end merger.
66. In the September 1 Announcements, Alliance
represented that it expected "to complete the merger" by
Thanksgiving, but said nothing of the terms other than to repeat
that there would be "an appropriate collar".
67. Alliance well knows that the confusion and
uncertainty it is causing with respect to the likelihood and
terms of a back-end merger with Bally will cause Bally
shareholders to react like victims of the classic game of
Prisoners' Dilemma: even knowing that all would be better off if
they eschewed the Offer in order to accept the WMS merger, each
shareholder will be concerned that other shareholders might seek
to obtain $12.50 in immediate cash for all their shares by
tendering their stock to Alliance. (This can happen only if
sufficient shares are tendered to give Alliance a majority, but
not more; if more shares than needed are tendered, then the
tendered shares will be accepted on a pro-rata basis, with the
unbought tendered shares returned to await the back-end merger.)
Fearful of obtaining only whatever consideration Alliance offers
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in a back-end merger if enough stock is tendered to give Alliance
control, each shareholder will feel coerced to tender even if he
regards the WMS merger as superior.
68. Alliance has been particularly waffling about
another issue concerning Alliance's plans: its intention to
conduct a contest for election of Bally directors. Also in
section 12, the 14D-1/Proxy Statement stated:
If the [Bidder] acquires, through the Offer
or otherwise, voting power with respect to at
least a majority of the outstanding Shares,
it would have sufficient voting power to
effect the Proposed Merger without the vote
of any other stockholder of [Bally]. If,
following the consummation of the Offer, a
majority of the current members of the Board
of Directors of [Bally] have not previously
been replaced at an annual meeting or
otherwise removed and do not either resign
and cause nominees of the [Bidder] to be
elected to fill the resulting vacancies or
approve the Proposed Merger, then the
[Bidder] intends to act by written consent to
remove the members of the Board of Directors
and to cause nominees of the [Bidder] to be
elected to fill the resulting vacancies who
intend to approve the Proposed Merger as soon
as practicable thereafter, subject to the
fiduciary duties they would have as directors
of [Bally]. If as a result of issuances of
additional Shares the [Bidder] does not
obtain in the Offer voting power with respect
to a majority of the outstanding Shares, the
[Bidder] would nonetheless seek to take the
foregoing steps.
* * *
Except as described in this Offer to
Purchase, Alliance and the [Bidder] have no
present plans or proposals that would result
in (i) an extraordinary corporate
transaction, such as a merger, consolidation,
reorganization or liquidation involving
[Bally] or any of its subsidiaries, (ii) a
sale or transfer of a material amount of
assets of [Bally] or any of its subsidiaries,
(iii) any material change in the present
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capitalization or dividend policy of [Bally],
(iv) any other material change in [Bally]'s
corporate structure or business, (v) causing
a class of securities of [Bally] to be
delisted from a national securities exchange
or to cease to be authorized to be quoted in
an inter-dealer quotation system of a
registered national securities association or
(vi) a class of equity securities of [Bally]
becoming eligible for termination of
registration pursuant to Section 12(g)(4) of
the Exchange Act.
(Emphasis supplied.)
This was a flat statement that if Alliance obtained
majority voting power in any way, it would vote to effect the
merger with Bally, and that it had no other plans with respect to
the sale of Bally.
69. That statement was totally inconsistent with (i)
Alliance's press release statement that it intended to seek to
elect independent directors to facilitate the sale of Bally at
the highest possible price, no matter to whom; (ii) Alliance's
similar representation in court on July 27, 1995; and (iii) the
statement attributed to Alliance in the July 31, 1995 Mergers &
Acquisitions Report to the effect that the Offer was really
intended to point up the seriousness of Alliance's planned proxy
fight which would result, if successful, in Bally's being put "up
for sale to the highest bidder." Moreover, of course, the 14D-
1/Proxy Statement said nothing about Alliance's plans to conduct
a consent solicitation to elect Bally directors, or the
additional variations as to what those directors would be
committed to do about the Alliance Offer or the WMS merger.
Finally, in its September 1 Announcements, Alliance confusingly
explained that it did not intend to conduct a consent
solicitation, but that it might if Bally continued to oppose the
Offer. Since nothing about the Offer has changed except
(possibly) its financing, and since Bally has already explained
that it prefers the WMS merger, Alliance must explain to Bally's
shareholders what its intentions are with respect to a consent
and/or proxy solicitation.
History of Negotiations
-----------------------
70. Alliance's version of the history of its
negotiations with Bally and its alleged efforts to obtain due
diligence of Bally was set forth at length in section 11 of the
14D-1/Proxy Statement, "Contacts and Transactions with [Bally];
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Background of the Offer". The brunt of the story was that
Alliance had continually sought, and had been continually denied,
access to confidential information about Bally on a "level" basis
with WMS. The same thrust appeared in Alliance's press releases.
71. The commentary and self-serving correspondence set
forth in the 14D-1/Proxy Statement were false and misleading, and
distorted the true history of the negotiations as set forth
above.
Obstacles to a Rapid Alliance/Rally Combination
-----------------------------------------------
72. Alliance represented in two letters quoted in
section 11 of the 14D-1/Proxy Statement that it believed that it
had a timing advantage over the WMS merger because (i) the cash
portion of the Alliance Offer could be consummated immediately
and (ii) Alliance would quickly obtain regulatory approval.
These representations were repeated in the September 1
Announcements, in which Alliance claimed it could consummate the
Offer by the and of September and the back-end merger by
Thanksgiving. This is a false and misleading representation.
73. First, Alliance's purported ability to consummate
the cash Offer immediately is premised on its analysis of a non-
competition agreement to which Bally is a party, which analysis
appeared in section 15 of the 14D-1/Proxy Statement, "Certain
Legal Matters":
Non-competition covenant. Alliance
understands that [Bally] is a party to an
agreement with Bally Entertainment
Corporation ("Entertainment"), its former
parent, that contains a provision requiring
that [Bally] not (and requiring [Bally] to
cause its affiliates (as defined) not to)
engage in any business in which Entertainment
or certain related parties are engaged.
Following consummation of the Offer, Alliance
believes that it will not become, and should
not be deemed, an affiliate of [Bally] for
this purpose. Alliance's casino operations
(but not its route operations) are businesses
in which Entertainment is engaged. The non-
competition covenant expires an January 8,
1996, but contains a provision purporting to
postpone the expiration for any period during
which [Bally] is in violation of the
covenant. Even if Alliance were deemed an
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affiliate for this purpose following
consummation of the Offer, Alliance believes
that enforcement of the covenant against
[Bally] in respect of Alliance's casino
operations would be unreasonable and contrary
to the public interest. Accordingly,
Alliance does not believe the covenant would
be interpreted to apply with respect of the
Offer or the Proposal Merger.
74. The major error in this analysis is that Alliance
stated no basis for its contentions that it would not be deemed
an affiliate of Bally upon acquiring 51% of Bally's stock -- the
agreement with Bally Entertainment defines "affiliate" to include
just such a situation -- or that the public interest would
prevent enforcement of the agreement.
75. The agreement would thus bar Alliance from
consummating the Alliance Offer prior to January 8, 1996, or
longer if Alliance caused Bally to violate it by acquiring 51% of
Bally stock pursuant to the Offer.
76. Alliance has told Bally that it proposes to ignore
the agreement and let Entertainment sue over the violation. What
Alliance has failed to explain is that Entertainment is a
substantial customer of Bally and the licensor of its name.
Regardless of the enforceability of the agreement, therefore, it
would be a very risky proposition to anger Entertainment.
77. As to regulatory approvals, Alliance set forth a
lengthy explanation of the process in section 15 of the
14D1/Proxy Statement. What it did not set forth is (i) the need
for Alliance to obtain prior approval before it accepts consents
from enough Bally shareholders to obtain control of Bally, or
(ii) the embarrassment and delay that will be caused by the need
to reveal to regulators the role being played in Alliance by
Rainwater and possibly others behind Alliance and its new sources
of financing, and in particular the fact that Rainwater is
assuming an enlarged role the gambling industry, and the
potential conflict with his baseball interests, or (iii) the
likelihood that regulators will reject an Alliance/Bally
combination because of the financial instability of the combined
entity, as set forth above. Upon information and belief,
Alliance has previously concealed from regulators in various
states that Rainwater is an active principal behind Alliance's
controlling shareholder, but has instead represented that he is a
passive investor and that he has no intent of having any active
role in management decisions. Indeed, the Nevada Gaming
Commission has ordered that Rainwater have no involvement in the
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running of Alliance without prior approval. The disclosure of
Rainwater's active role to the regulators will cause substantial
delays in the approval process. Similarly, the unstable
financial condition of Alliance and Bally after consummation of
the Offer including the immediate obligation to repurchase $40
million in Bally notes), let alone after a merger, will cause
delay in the regulatory approval process and possibly ultimate
rejection.
78. Moreover, compliance by Alliance with federal
securities laws, SEC rules and applicable state laws will render
it possible for Alliance to affect a back-end merger with Bally
"by Thanksgiving".
79. For all of these reasons, Alliance's representa-
tions that it could get value to Bally's shareholders quickly
were false and misleading.
The WMS Merger
--------------
80. Relative speed of accomplishment is only one
ground on which Alliance has falsely described its Offer as
superior to the WMS merger. Detailed comparisons appeared in two
letters quoted in section 11 of the 14D-1:
We believe our offer is clearly superior to
the WMS offer:
1. The price we are offering
represents a substantial premium over your
current market price and is higher than the
value of the WMS offer.
2. The consideration is largely cash,
giving your stockholders more certainty as to
the value of our offer.
3. Our offer is not conditioned on
disposition of substantial assets.
4. We believe our offer has a
significant timing advantage over the WMS
offer. Our transaction could be promptly
completed in two stages to get the cash
portion to your stockholders quickly. Also,
we are well known to your regulators, are
already licensed in Nevada and believe that
we could quickly obtain the needed regulatory
approvals.
-24-
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<PAGE>
5. We are prepared to take appropriate
steps to foster continuity of management.
6. We are familiar with BGII and its
industry and believe we could quickly
finalize a definitive agreement.
* * *
To turn now to the benefits of our offer:
-- the price is higher.
-- the consideration is largely cash.
-- the cash portion of our deal could
be done separately before a merger,
speeding the delivery of value to
your stockholders.
-- the exchange ratio for our deal
would not be set until the time of
the merger, protecting your
stockholders against the market
risk they have been suffering with
WMS.
-- we are well known to your regu-
lators and are confident we can get
regulatory approval promptly.
-- we believe that signing an agree-
ment in principle with us would
help you avoid a conflict between
doing what is best for your
stockholders and hastily accepting
an inferior offer in order to
forestall the embarrassment of
possible imminent regulatory
sanctions in New Jersey.
-- our deal does not involve asset
sales or other dispositions of
questionable feasibility.
-- we can bring advanced technology to
bear on Bally's business in a way
that will create significant value
for both companies' shareholders
while keeping your management team
and momentum intact.
-25-
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<PAGE>
81. Similar comparisons appeared in the September 1
Announcements.
82. The falsity of the timing comparison has been set
forth above. Many of the other comparisons are equally false and
misleading:
(i) The price of the Alliance offer in not higher than
that of the WMS merger when the following factors
are taken into consideration:
-- the low likely value of any back-end merger
with Alliance (given the collar);
-- the rising price of WMS stock ($22.75 as of
September 1, 1995); and
-- the likelihood that Bally shareholders will
receive cash from proceeds of the sale of the
German operations in excess of $55 million,
which together with the higher price of WMS
stock means the Bally shareholders will
receive more than $12.50 per share.
(ii) The fact that the Alliance Offer's consideration
is largely cash does not make the Alliance Offer
superior because:
-- Bally shareholders will likely receive some
cash in the WMS merger as well;
-- any Bally shareholder who wishes to receive
cash can sell highly liquid WMS stock on the
New York Stock Exchange; and
-- the structure of the consideration of the WMS
merger makes the transaction largely tax-free
to Bally shareholders, as contrasted with the
fully taxable Alliance Offer.
(iii) The "advantage" of not setting the exchange ratio
for the Alliance back-end merger until the time of
the merger is offset by:
-- the rising price of WMS stock;
-- the low value that Alliance stock will likely
have once the companies are combined;
-26-
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<PAGE>
-- the collar and the extraordinary dilution
that would result from the issuance of new
Alliance shares; and
-- the probability that no back-end merger with
Alliance will ever take place, or that one
other than the Proposed Merger will take
place.
(iv) Alliance knows full well that the sale of the
German operations is not "of questionable
feasibility".
83. Each and every one of the foregoing misstatements
and omissions is material and was made knowingly by Alliance.
Misrepresentations and Omissions in the
Preliminary Consent Statement and August 8 Letter
-------------------------------------------------
84. The Preliminary Consent Statement repeated, and
the August 8 Letter summarized, the misrepresentations and
omissions of the 14D-1/Proxy Statement and Alliance's other
public statements on the subjects of the interests behind
Alliance, the financing for the Alliance Offer, the financial
condition of a combined Alliance/Bally entity and the history of
negotiations.
85. In addition, the following elements of
disinformation were added to the mix by the Preliminary Consent
Statement and the August 8 Letter, and remain of importance since
Alliance has reserved its right to make a consent solicitation in
certain circumstances:
-- The Preliminary Consent Statement, like
Alliance's July 25 announcement but unlike
the 14D-1/Proxy Statement, did not contain a
reservation of rights to abandon or modify
the terms of the proposed back-end merger.
This added to the market's confusion about
whether the back-end merger will, or may, or
never will take place, and increased the
coercive effect of the Alliance Offer.
-- Since the Alliance slate's program committed
it to approve the Alliance Offer and proposed
merger, subject only to financing, it is
particularly important that Alliance provide
sufficient information about the finances of
the combined companies to permit an
assessment of the viability of that entity.
-27-
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<PAGE>
But the Preliminary Consent Statement was
devoid of such information.
-- The program provided that either the newly-
elected directors would be satisfied with the
financing for the Alliance Offer, in which
case they would accept and facilitate the
Offer, or they would not be satisfied, in
which case they would resign. This division
of the universe of possibilities left no room
for the consideration of facilitation of
"other" offers for Bally, which the newly-
elected directors were also somehow committed
to undertake. Alliance must explain whether
the directors will accept the Alliance offer
subject only to financing or whether there
are other circumstances in which they might
reject the Offer.
-- In speaking of "other" or "revised" offers
that might provide "greater value" to Bally
shareholders, it is clear that Alliance meant
to exclude the WMS merger (which is not an
"other" or "revised" offer). However, the
Preliminary Consent Statement did not
disclose that the WMS merger is, for the
reasons stated above, at least not inferior
to the Alliance Offer.
-- Indeed, even more significantly, the
Preliminary Consent Statement barely
recognized the existence of the WMS merger,
and said nothing whatsoever about its terms.
It is impossible for any Bally shareholder
rationally to decide whether to take a step
virtually certain to lead to the acceptance
of the Alliance Offer without being fully
advised about the single alternative
currently available, the WMS merger.
-- The Preliminary Consent Statement attempted
to foster a sense of suspicion of the present
Bally board by falsely intimating that that
board might secretly have adopted by-law
amendments designed to entrench itself, when
Alliance knew full well that the board had
taken no such action.
-- The Preliminary Consent Statement explained
that Alliance did not believe that its
-28-
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<PAGE>
solicitation of sufficient consents to give
it control of Bally would be an "acquisition
of control" for regulatory purposes, and thus
require prior approval, but it did not
disclose that this belief was without basis
in fact or law.
-- The August 8 Letter explicitly and falsely
stated that the "offer from WMS" was "lower"
than the Alliance Offer, but gave no details
at all about what the offer from WMS is.
86. Each and every one of the foregoing misstatements
and omissions is material and was made knowingly by Alliance.
FIRST CLAIM FOR RELIEF
----------------------
87. Bally repeats and realleges each and every
allegation of paragraphs 1 through 86 of this Complaint as if
fully set forth herein.
88. Section 14(d) of the Exchange Act requires that
tender offerors like Alliance file with the SEC a statement
containing the information required by SEC rules. Rule 14d-3
thereunder requires that the statement be on Schedule 14D-1.
Rule 14d-100 contains detailed filing instructions for Schedule
14D-1, which require the offeror to set forth fully and
accurately, inter alia:
(i) Item 2: The identity and background of all
persons who control the offeror.
(ii) Item 4: The source and amount of all funds to be
used in the offer.
(iii)Item 5: The purpose of the offer and all plans
the offeror has for material changes in the
ownership, control, structure or business of the
target.
(iv) Item 10: Additional information, including such
additional material information as may be
necessary to make the required statements, in
light of the circumstances in which they are made,
not materially misleading.
89. By reason of the aforesaid material misstatements
and omissions, defendants have knowingly violated Section 14(d)
and Rules 14d-3 and 14d-100 thereunder.
-29-
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<PAGE>
90. If defendants are not preliminarily and
permanently adjoined from violating the law, and from proceeding
with its Offer without making corrective disclosures, Bally and
its shareholders will suffer irreparable injury in that
shareholders will be forced to make investment decisions
concerning their Bally stock without full and adequate
information.
91. Bally has no adequate remedy at law.
SECOND CLAIM FOR RELIEF
-----------------------
92. Bally repeats and realleges each and every
allegation of paragraphs 1 through 86 of this Complaint as if
fully set forth herein.
93. Section 14(e) of the Exchange Act makes it
unlawful for a tender offeror like Alliance to make any untrue
statement of material fact or omit to state any material fact
necessary in order to make the statements made, in the light of
the circumstances under which they are made, not misleading, or
to engage in any fraudulent, deceptive or manipulative acts or
practices in connection with its offer.
94. By reason of the aforesaid material misstatements
and omissions, and the fact that the Alliance Offer is illusory,
defendants have knowingly violated Section 14(e).
95. If defendants are not preliminarily and
permanently enjoined from violating the law, and from proceeding
with its Offer without making corrective disclosures, Bally and
its shareholders will suffer irreparable injury in that
shareholders will be force to make investment decisions
concerning their Bally stock without full and adequate
information.
96. Bally has no adequate remedy at law.
THIRD CLAIM FOR RELIEF
----------------------
97. Bally repeats and realleges each and every
allegation of paragraphs 1 through 86 of this Complaint as if
fully set forth herein.
98. Section 14 (a) of the Exchange Act prohibits proxy
solicitation (including consent solicitation) in contravention of
rules adopted thereunder by the SEC. Rule 14a-3 thereunder
requires that no person may solicit proxies or consents without
-30-
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<PAGE>
first furnishing to those solicited a proxy statement containing
the information specified in Schedule 14A. Rule 14a-5 sets forth
details concerning the presentation of information in the proxy
statement. Rule 14a-6 requires preliminary filing of proxy
statements with the SEC except in certain circumstances. Rule
14a-9 prohibits solicitations of proxies or consents by means of
any false or misleading statement. Rule 14a-101 sets forth
detailed instructions concerning Schedule 14A.
99. By reason of the facts that, as aforesaid,
defendants' purported Offer, their contacts with certain Bally
shareholders, their Preliminary Consent Statement and their
August 8 Letter constitute solicitations of consents with respect
to action that involves both the election of directors and a
merger; defendants had at the relevant times neither furnished to
those solicited nor filed with the SEC the required proxy
statements; and the 14D-1/Proxy Statement, Preliminary Consent
Statement and August 8 Letter to shareholders are false and
misleading, defendants have knowingly violated Section 14(a) and
Rules 14a-3, 14a-5, 14a-6, 14a-9 and 14a-101 thereunder.
100. If defendants are not preliminarily and
permanently enjoined from violating the law, and from proceeding
to solicit consents until they have complied with the law, Bally
and its shareholders will suffer irreparable injury in that
shareholders will be forced to make investment decisions
concerning their Bally stock without full and adequate
information.
101. Bally has no adequate remedy at law.
WHEREFORE, Bally demands judgment against defendants as
follows:
I. On the First Claim for Relief, an order
preliminarily and permanently enjoining defendants
and all those in active concert and participation
with them from violating Section 14(d) of the
Exchange Act and Regulation 14D thereunder, and
from proceeding in any way with the Alliance Offer
until they have made adequate corrective
disclosures.
II. On the Second Claim for Relief, an order
preliminarily and permanently enjoining defendants
and all those in active concert and participation
with them from violating Section 14(a) of the
Exchange Act, and from proceeding in any way with
the Alliance Offer until they have made adequate
corrective disclosures.
-31-
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<PAGE>
III. On the Third Claim for Relief, an order
preliminarily and permanently enjoining defendants
and all those in active concert and participation
with them from violating Section 14(a) of the
Exchange Act and Regulation 14A thereunder, and
from soliciting any consent or proxy from any
Bally shareholder until they have complied with
the law.
IV. Awarding Bally the costs of this suit, including
reasonable attorneys' fees.
V. Awarding Bally such other and further relief as
may to the Court seem just and proper.
POTTER ANDERSON & CORROON
By__________________________________
OF COUNSEL: Michael D. Goldman (#268)
Stephen C. Norman (#2686)
SHEREFF, FRIEDMAN, HOFFMAN Michael A. Pittenger (#3212)
& GOODMAN, LLP 350 Delaware Trust Building
919 Third Avenue Wilmington, Delaware 19801
New York, NY 10022 (302) 984-6000
(212) 758-9500
Attorneys for Plaintiff
Dated: September 5, 1995
-32-
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=================================================================
UNITED STATED DISTRICT COURT
Southern District of New York
------------------------- ---------------------------
WMS INDUSTRIES INC.,
SUMMONS IN A CIVIL ACTION
Plaintiff,
CASE NUMBER:
v.
ALLIANCE GAMING CORPORATION and BGII
ACQUISITION CORP., JOEL KIRSCHBAUM,
STEVEN GREATHOUSE, ANTHONY L. DICESARE,
CRAIG FIELDS, DAVID ROBBINS, ALFRED W.
WILMS AND JOHN DOES 1-5.
Defendants.
TO: (Name and Address of Defendant)
Alliance Gaming Corporation BGII Acquisition Corp.
4380 Boulder Highway 4380 Boulder Highway
Las Vegas, Nevada 89121 Las Vegas, Nevada 89121
See annexed schedule for additional defendants.
YOU ARE HEREBY SUMMONED and required to file with Clerk of
this Court and serve upon
PLAINTIFF'S ATTORNEY (name and address)
Arthur M. Handler, Esq. (AH0693)
BURNS HANDLER & BURNS LLP
220 East 42nd Street, Suite 3000
New York, New York 10017
(212) 687-1300
an answer to the complaint which is herewith served upon you,
within 20 days after service of this summons upon you, exclusive
of the day of service. If you fail to do so, judgment by default
will be taken against you for the relief demanded in the
complaint.
/s/ James M. Parkson September 5, 1995
_________________________________ ______________________
CLERK DATE
_________________________________
BY DEPUTY CLERK
PAGE
<PAGE>
SCHEDULE TO SUMMONS
-------------------
To: (Name and Address of Defendant)
Joel Kirschbaum
c/o Alliance Gaming Corporation
4380 Boulder Highway
Las Vegas, Nevada 89121
Steven Greathouse
c/o Alliance Gaming Corporation
4380 Boulder Highway
Las Vegas, Nevada 89121
Anthony L. DiCesare
c/o Alliance Gaming Corporation
4380 Boulder Highway
Las Vegas, Nevada 89121
Craig Fields
c/o Alliance Gaming Corporation
4380 Boulder Highway
Las Vegas, Nevada 89121
David Robbins
Kramer Levin Naftalis Nessen Kamin & Frankel
919 Third Avenue
New York, New York 10022
Alfred W. Wilms
c/o Alliance Gaming Corporation
4380 Boulder Highway
Las Vegas, Nevada 89121
PAGE
<PAGE>
Arthur M. Handler (AH 0693)
BURNS HANDLER & BURNS LLP
Attorneys for Plaintiff
220 East 42nd Street, Suite 3000
New York, New York 10017
(212) 687-1300
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - X
WMS INDUSTRIES INC.,
: COMPLAINT
Plaintiff, ---------
:
- against - 95 Civ. 7710 (JSM)
:
ALLIANCE GAMING CORPORATION,
BGII ACQUISITION CORP., JOEL :
KIRSCHBAUM, STEVEN GREATHOUSE,
ANTHONY L. DICESARE, CRAIG :
FIELDS, DAVID ROBBINS, ALFRED
W. WILMS AND JOHN DOES 1-5. :
Defendants :
- - - - - - - - - - - - - - - - - - X
Plaintiff, WMS Industries Inc. ("WMS"), by its
attorneys, Burns Handler & Burns LLP, for its complaint in this
action respectfully alleges:
Nature of Action
----------------
1. This action seeks a preliminary and permanent
injunction against the tender offer of defendants Alliance Gaming
Corporation ("Alliance") and its wholly owned subsidiary BGII
Acquisition Corp. ("BAC") to enjoin and prevent continuing and
threatened violations by defendants of Sections 14(d) and (e) of
Securities Exchange Act of 1934 (the "1934 Act"), 15 U.S.C.
Section 78n(d) and (e), Regulation 14D promulgated under such Act
by the Securities and Exchange Commission (the "SEC"), and state
common and statutory law. These violations were and are being
committed by defendants in furtherance of a conspiracy between
and among defendants and others with the object of, among other
things, (a) inducing stockholders to tender shares of Bally
Gaming International, Inc. ("Bally Gaming") to defendants;
(b) unlawfully obtaining control of the management and valuable
assets of Bally Gaming; and (c) depriving WMS of the rights and
benefits of its contractual agreement of merger with Bally Gaming
dated as of June 21, 1995 (the "Merger Agreement").
PAGE
<PAGE>
2. The defendants and others acting in concert with
them have issued and disseminated untrue statements of material
fact or have omitted to state material facts necessary to make
statements made, in the light of the circumstances under which
they are made, not misleading. Such persons have issued and
disseminated false and misleading statements into the marketplace
concerning defendants' tender offer for shares of Bally Gaming so
as to mislead Bally Gaming stockholders and the public into
tendering Bally Gaming shares to defendants and inducing such
stockholders to thereby cause disapproval of the Merger Agreement
between Bally Gaming and WMS. Defendants' tender offer is so
materially deficient that no shares of Bally Gaming tendered in
response to such offer may be lawfully acquired.
3. The defendants and those acting in concert with
them have illegally and improperly interfered with WMS's Merger
Agreement with Bally Gaming and have sought unlawfully to mislead
Bally Gaming stockholders and the public regarding the relative
economic benefits of the Merger Agreement as compared to
defendants' tender offer.
4. By means of the aforesaid misrepresentations,
omissions and illegal acts, defendants are seeking to compel
Bally Gaming stockholders to make an immediate investment
decision to tender their Bally Gaming shares to defendants,
without defendants' compliance with the federal securities and
other laws to the detriment of Bally Gaming stockholders, Bally
Gaming and WMS. Defendants have by press release dated September
1, 1995, announced the extension of their tender offer to
September 29, 1995.
5. Defendants' illegal acts will cause irreparable
harm unless enjoined, since among other things, if the
transaction proposed by defendants is consummated, it would
result in a merger of Bally Gaming and the disappearance of Bally
Gaming as an independent publicly owned entity.
Jurisdiction and Venue
----------------------
6. Jurisdiction of this action is predicated upon
Section 27 of the 1934 Act, 15 U.S.C. Section 78aa, and involves
a federal question, 28 U.S.C. Sections 1331 and 1337. Acts and
transactions constituting violations hereinafter alleged took
place in this District. Jurisdiction for the non-federal claims
hereinafter alleged is based on the principle of pendent
jurisdiction. Venue is proper within this district pursuant to
28 U.S.C. Section 1391(b) and 15 U.S.C. Section 78aa.
-2-
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<PAGE>
The Parties
-----------
7. Plaintiff WMS was and still is a corporation
organized and existing under the laws of the State of Delaware
with a principal office at 3401 North California Avenue, Chicago,
Illinois. WMS is engaged in the design, manufacture and sale of
coin-operated amusement games, video lottery terminals and gaming
devices, the design and sale of home games and the ownership and
operation of hotels and casinos in Puerto Rico.
8. Upon information and belief, defendant Alliance is
a Nevada corporation with its principal place of business at
4380 Boulder Highway, Las Vegas, Nevada. Alliance operates
gaming machines in Nevada and Louisiana, owns casinos in
Mississippi and Nevada and develops gaming machines for its own
use.
9. Upon information and belief, defendant BAC, a
Delaware corporation, is a wholly owned subsidiary of defendant
Alliance, with a principal office in Nevada. Upon information
and belief, BAC was formed to acquire Bally Gaming and has not
conducted any other activities since its organization.
10. Defendants Joel Kirschbaum, Steven Greathouse,
Anthony L. DiCesare, Craig Fields, David Robbins and Alfred W.
Wilms are each directors of Alliance.
11. Upon information and belief, Joel Kirschbaum is
also the owner of Kirkland Investment Corp., which is the general
partner of Kirkland-Fort Worth Investment Partners, L.P., which
upon information and belief, controls approximately 11% of the
outstanding shares of Alliance common stock.
12. John Does 1-5 are additional persons whose
identity is presently unknown who authorized, directed and
participated in the wrongful acts of the defendants set forth
herein. Upon ascertaining the identity of such persons, the
complaint will be amended to add them as parties defendant.
STATEMENT OF FACTS
------------------
The Bally Gaming Negotiations
-----------------------------
13. On information and belief, Bally Gaming is a
Delaware corporation with its principal place of business at 6601
South Bermuda Road, Las Vegas, Nevada. Bally Gaming is engaged
-3-
PAGE
<PAGE>
in the design and manufacture of gambling machines, including
slot machines and video poker equipment. Bally Gaming is the
second largest manufacturer of gaming devices in the United
States, with approximately 15% of the market. Bally Gaming
shares are traded in the over-the-counter market and prices are
quoted on the Nasdaq National Market. There are presently
outstanding approximately 10,750,000 shares of Bally Gaming
common stock.
14. On information and belief and as publicly
disclosed by Bally Gaming, representatives of Alliance and of
Bally Gaming participated in extensive meetings during 1993 and
1994 in contemplation of a potential transaction between the two
companies. In the course of these discussions, Bally Gaming
requested and Alliance refused to sign a confidentiality and
standstill agreement required by Bally Gaming which would have
permitted Alliance to have access to certain non-public
information of Bally Gaming, sometimes referred to as "due
diligence information."
15. On April 17, 1995, Bally Gaming announced publicly
that it had entered into a letter of intent with WMS for a merger
between WMS and Bally Gaming.
16. As part of the letter of intent, WMS agreed to
Bally Gaming's terms for a confidentiality and standstill
agreement, which terms, upon information and belief, had been
refused by Alliance, and WMS was then given access to certain
Bally Gaming due diligence information.
17. After April 17, 1995 and during the months of
April, May and June, 1995, WMS and Bally Gaming conducted
negotiations towards a merger agreement.
18. On June 19, 1995, Alliance, by a letter to the
Board of Directors of Bally Gaming and a related press release,
announced that it was willing to pay $12.50 in a combination of
cash and stock for each share of outstanding common stock of
Bally Gaming.
19. Upon information and belief and as publicly
disclosed by Bally Gaming, with respect to Alliance's offer,
representatives of Bally Gaming raised concerns regarding the
nature of Alliance's financing commitments, which appeared
questionable given Alliance's history of losses and existing high
leverage. Such concerns were underscored by the Schedule 13D
filed by Alliance with the SEC on June 28, 1995, which revealed
that its financing "commitments" were still subject to, among
other things, due diligence of Alliance itself and to Alliance's
-4-
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<PAGE>
obtaining commitments from other sources for permanent financing
to replace the financing in question.
20. Upon information and belief, Bally Gaming's Board
of Directors met on June 21, 1995, and after extensive analysis
and advice from experts (including a fairness opinion with
respect to the WMS proposal from Ladenburg Thalmann & Co., Inc.
("Ladenburg"), Bally Gaming's financial advisor), the Board
concluded that the WMS merger proposal was superior to the
Alliance proposal, financially and otherwise, and in the better
interest of Bally Gaming stockholders. The Bally Gaming Board of
Directors approved the Merger Agreement with WMS and recommended
that the Merger Agreement and the other transactions contemplated
thereby be submitted to Bally Gaming's stockholders for their
approval.
21. On June 20, 1995, the Board of Directors of WMS
approved the WMS/Bally merger and the other transactions
contemplated thereby and recommended approval and adoption of the
Merger Agreement by the WMS stockholders.
22. On June 21, 1995, following the aforesaid meeting
of Bally Gaming's Board of Directors, WMS and Bally Gaming
executed the Merger Agreement, which provided that Bally Gaming
be merged with WMS.
23. On June 22, 1995, WMS and Bally Gaming issued a
joint press release announcing the Merger Agreement, which
stated, inter alia:
The Boards of both companies have concluded that the
combination of WMS and Bally Gaming's domestic gaming
machine business creates a powerful competitive force in the
gaming industry. They believe that in combining these two
companies, the strength of each partner is enhanced.
In that press release, the Chairman of the Board of Bally Gaming
stated:
"After carefully reviewing the opportunities created by a
combination with WMS and carefully evaluating the merits of
the alternatives for the Company's future, the Board of our
Company concluded that this business combination was in the
best interest of our stockholders."
The Merger Agreement
--------------------
24. Pursuant to the terms of the Merger Agreement,
stockholders of Bally Gaming will receive 0.55 shares of common
-5-
PAGE
<PAGE>
stock of WMS for each outstanding share of common stock of Bally
Gaming, plus additional consideration from the sale of Bally
Gaming's German operations to the extent such sale price exceeds
$55 million net.
25. As of September 5, 1995, given a closing price of
$23.50 per share of WMS common stock and the fact that Bally
Gaming has received a preliminary bid of $60 million for the
German operations, the value of the Merger Agreement to a Bally
Gaming stockholder is approximately $13.37 per share.
Alliance's Hostile Tender Offer
-------------------------------
26. On July 25, 1995, more than a month after the
public announcement of the Merger Agreement, Alliance issued a
press release in which it announced that it would make a tender
offer to purchase up to 4,400,000 shares of Bally Gaming at
$12.50 per share. The offer was subject to Alliance being
validly tendered a number of shares, which when combined with the
shares Alliance already owned, would give Alliance ownership of a
majority of Bally Gaming's outstanding common stock. At that
time, Alliance owned one million shares, or 9.3% of Bally
Gaming's approximately 10.75 million outstanding shares of common
stock.
27. The press release also announced the commencement
of litigation in Delaware Chancery Court against Bally Gaming to
obtain the due diligence information Alliance had previously not
obtained due to its failure to sign the requested confidentiality
standstill agreement and to enjoin Bally Gaming from proceeding
with the WMS merger. Alliance's July 25th press release also
stated that if Alliance did not gain access to the due diligence
information, it would engage in a proxy fight and nominate a
slate of "independent" directors to replace a majority of Bally
Gaming's Board of Directors.
28. On July 28, 1995, Alliance published a Notice of
Offer to Purchase shares of Bally Gaming (the "Notice") in the
New York Times, July 28, 1995, at p. D5, pursuant to which
Alliance offered to purchase a number of shares of Bally Gaming
common stock sufficient to give Alliance beneficial ownership of
a majority of Bally Gaming's outstanding shares. The notice
identified Donaldson, Lufkin & Jenrette Securities Corporation as
Alliance's financial advisor. The Notice listed Georgeson &
Company, Inc., Wall Street Plaza, New York, New York, as the
Information Agent. The Depositary for tendered shares is Bankers
Trust Company, New York, New York. The Notice stated that the
tender offer expired on August 24, 1995 unless extended. The
tender offer was subsequently extended to September 12, 1995 and
-6-
PAGE
<PAGE>
on September 1, 1995, Alliance announced that it was further
extending the expiration for the tender offer to midnight on
September 29, 1995.
29. On July 28, 1995 Alliance filed Schedule 14D-1,
including Alliance's Offer to Purchase, with the SEC regarding
its proposed tender offer. The Schedule 14D-1 and any
amendments thereto are hereinafter referred to collectively as
"the Alliance Tender Offer."
30. Alliance's Offer to Purchase was publicly distrib-
uted through Georgeson & Company, Inc.
31. Pursuant to the Alliance Tender Offer, Alliance
and BAC are seeking to purchase up to 4,400,000 shares of common
stock of Bally Gaming for $12.50 net per share, and thereafter,
on a subsequent back-end merger, to acquire the remaining Bally
Gaming shares in exchange for shares of Alliance common stock.
The Alliance shares issuable in the back-end merger would be
valued at their average closing price for a period of 10 Nasdaq
National Market trading days ending five days prior to
consummation of the merger subject to an "appropriate", but
unspecified, collar, purportedly equal to the price paid in the
tender offer.
32. If the Alliance Tender Offer succeeds in inducing
Bally Gaming stockholders to tender their shares and defendants
become the owners of a majority of the outstanding Bally Gaming
shares, defendants would have the voting power to cause the
disapproval of the Merger Agreement without regard to the votes
of the remaining Bally Gaming shares.
33. Upon consummation of the Alliance Tender Offer,
the back-end merger will result in Bally Gaming being merged into
Alliance or a subsidiary thereof and no longer existing as a
separate entity.
Bally Gaming's Response To The Alliance Tender Offer
----------------------------------------------------
34. Upon information and belief and as publicly
disclosed, on August 7, 1995, Bally Gaming's Board of Directors
met to consider the Alliance Tender Offer. At that meeting,
Bally Gaming's Board of Directors was advised by its financial
advisor, Ladenburg, that in its opinion the transactions proposed
by Alliance were not as favorable as the Merger Agreement with
WMS, from a financial point of view, to Bally Gaming's
stockholders and that Ladenburg could not render an opinion that
the transactions proposed by Alliance were fair, from a financial
point of view, to Bally Gaming's stockholders.
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<PAGE>
35. On August 8, 1995, Bally Gaming announced in a
press release that its Board of Directors had determined that the
Alliance Tender Offer was inadequate, highly conditional and not
in the best interest of Bally Gaming stockholders. In said
release, Bally Gaming gave the following reasons, among others,
for rejecting the Alliance Tender Offer:
-- The opinion of Ladenburg, Thalmann & Co. Inc., an
independent investment bank retained as BGII's financial
advisor, that the two-step Alliance transaction is not as
favorable, from a financial standpoint, as the merger with
WMS Industries Inc. and that Ladenburg could not render an
opinion that the two-step Alliance transaction is fair.
-- A combination with perennially unprofitable Alliance
would result in an unstable, undercapitalized, highly
leveraged company which could raise licensing concerns among
gaming industry regulators.
-- The combined entity would have a negative tangible net
worth of approximately $10 million and $250 million of debt.
-- The illusory nature of Alliance's financing for the cash
portion of the transaction, which consists solely of a $150
million "senior secured bridge facility," requires permanent
financing and $20 million of additional equity, both of
which Alliance admits it does not have.
-- The dubious value of the back-end stock portion of the
Alliance proposal, especially given the fact that Alliance
has not reported an annual profit in the last five years,
already has debt of $100 million, and would incur $150
million in additional debt to acquire Bally Gaming.
-- Alliance's cash tender offer would be fully taxable to
Bally Gaming shareholders.
-- Alliance has not demonstrated that any synergies would
result from a combination of BGII and Alliance. A combined
entity would not have the resources to operate its business
effectively or support growth.
36. Bally Gaming has filed a Schedule 14D-9 with the
SEC formally responding to the Alliance Tender Offer including a
copy of Bally Gaming's letter to its stockholders dated August 8,
1995 recommending that shares not be tendered in response to the
Alliance Tender Offer.
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<PAGE>
Alliance's Consent Solicitation
-------------------------------
37. On August 8, 1995, Alliance issued a press release
announcing that it had made a preliminary filing with the SEC for
a consent solicitation to elect a majority of "independent"
directors to the Bally Gaming Board of Directors.
38. On the same day, August 8, 1995, Alliance filed
soliciting material with the SEC, which consisted of a letter to
Bally Gaming stockholders. Alliance's letter reiterated its
characterization of its offer to purchase Bally Gaming common
stock at $12.50 per share, referred to the interest of Alliance's
banks in financing the Alliance Tender Offer, stated that firm
financing commitments could not be obtained without an
opportunity to conduct due diligence as to Bally Gaming and
asserted that Bally Gaming had refused to give Alliance access to
such due diligence material. Alliance's letter further advised
the Bally Gaming stockholders that Alliance has filed materials
for a consent solicitation with the SEC to replace a majority of
Bally Gaming's Board of Directors with "independent" directors.
Notwithstanding Alliance's characterization of its proposed
nominees as "independent," Alliance represented that the program
of such "independent" directors would be as follows:
. They will permit Alliance and its banks to conduct due
diligence.
. If, following due diligence, the independent directors
are satisfied with Alliance's financing, they will
accept Alliance's offer.
. Otherwise the independent directors will resign,
leaving the board under the control of three of Bally
Gaming's current directors and leaving the WMS
agreement intact.
. They will evaluate any other offer or revised offer
providing greater value to Bally Gaming stockholders.
39. On August 8, 1995, Alliance filed preliminary
consent material with the SEC in connection with its proposed
consent solicitation.
Court Findings Of No Legal Entitlement By Alliance
To Bally Gaming Due Diligence Information
--------------------------------------------------
40. On July 27, 1995, the Delaware Chancery Court
ruled that Alliance's request for an order granting Alliance
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<PAGE>
immediate access to Bally Gaming's due diligence material was
without legal support in the Court's cognizance and denied the
request without prejudice to its being renewed on a showing of
legal entitlement to such relief. On August 3, 1995, Alliance
renewed the request for an order requiring immediate access to
Bally Gaming's due diligence material. By order dated August 11,
1995, the Court denied such request and found no basis for such
unprecedented extraordinary relief.
The Moratorium Agreement
------------------------
41. On August 14, 1995, Bally, WMS and Alliance, at
the suggestion of Alliance, entered into an agreement (the
"Moratorium") pursuant to which Alliance would not "pursue
implementation of its consent solicitation" nor pursue
solicitation of proxies prior to September 1, 1995. The
expiration date of the Alliance tender offer was extended to
September 12, 1995.
42. The Moratorium also provided that Bally and WMS
would not institute or threaten legal action against Alliance
until September 1, 1995, and that in the event Bally or WMS
instituted legal action on or after September 1, Alliance would
raise no objection based on the delay.
43. On August 25, 1995, pursuant to the Moratorium,
Alliance extended the expiration date of the Alliance Tender
Offer to September 12, 1995. At the same time, Alliance
announced that some 1.3 million shares of Bally stock had been
tendered into the Alliance Tender Offer.
44. The expressed purpose of the Moratorium was to
permit the parties "to explore the resolution of certain
outstanding disputes." Upon information and belief, although the
Moratorium was at the initiative of Alliance, it did not then and
never had any intention of exploring resolution of any disputes.
Instead, having been denied Bally Gaming's due diligence material
by the Delaware Chancery Court on August 11, 1995, Alliance, upon
information and belief, knew that its professed financing could
not be obtained and sought the Moratorium for the undisclosed
purpose of attempting to obtain alternative financing which would
not be subject to obtaining Bally Gaming due diligence
information.
The September 1st Amendment to the Alliance Tender Offer
--------------------------------------------------------
45. On September 1, 1995, Alliance filed with the SEC
Amendment No. 8 to its Schedule 14D-1 (the "September 1st Amend-
ment"). The September 1st Amendment announced the extension of
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<PAGE>
the Alliance Tender Offer to September 29, 1995. The Amendment
further stated:
On August 30, 1995, Foothill Capital Corporation
("Foothill") furnished Alliance with a letter (the "Senior
Commitment Letter") providing a commitment to lend to
Alliance on a senior basis -- not subject to due diligence -
- an aggregate principal amount of $35,000,000 (the "Senior
Loan") in connection with the Offer. See Exhibit (b)(2).
On August 30, 1995, Canpartners Investment IV, LLC and
Cerberus Partners, L.P. (collectively, the "Senior
Subordinated Lenders") furnished Alliance with a letter (the
"Senior Subordinated Commitment Letter" and, together with
the Senior Commitment Letter, the "Commitment Letters")
providing a commitment to lend to Alliance on a senior
subordinated basis -- also not subject to due diligence --
an aggregate principal amount of $30,000,000 (the "Senior
Subordinated Loan") in connection with the Offer. See
Exhibit (b)(3).
Alliance intends to use the funds to be provided
pursuant to the Commitment Letters in place of the Bridge
Facility described in the Proposal Letter referred to in
Section 10 of the Offer to Purchase. . . . Alliance intends
to recapitalize the combined companies promptly following
the consummation of the Proposed Merger. Alliance presently
intends to close its Offer immediately after regulatory
approval is obtained, which Alliance anticipates will occur
by the end of September.
Since the financing provided by the Commitment Letters
is not contingent on a due diligence review of the Company
by Foothill or the Senior Subordinated Lenders, Alliance
does not currently intend to proceed with its consent
solicitation to replace certain members of the Board of
Directors of the Company in order to obtain due diligence.
However, Alliance is prepared to pursue its consent
solicitation to replace the directors of the Company if they
continue to oppose the Offer.
The Senior Commitment Letter provides that the Senior
Loan will mature one year from the date of consummation of
the proposed financing (the "Senior Maturity Date"). The
Senior Loan will earn interest at the rate of 13% per annum
for the first six months of the loan and 15% per annum
thereafter until the Senior Maturity Date, payable monthly
in arrears. The Senior Loan will be guaranteed by certain
of Alliance's subsidiaries and secured by substantially all
assets of Alliance and such subsidiaries.
The Senior Subordinated Commitment Letter provides that
the Senior Subordinated Loan will mature two years from the
<PAGE> -11-
date of consummation of the proposed financing (the "Senior
Subordinated Maturity Date"). The Senior Subordinated Loan
will bear interest at the rate of 18% per annum until the
Senior Subordinated Maturity Date. The Senior Subordinated
Loan will be guaranteed by certain of Alliance's
subsidiaries and secured by substantially all assets of
Alliance and such subsidiaries, in each case on a
subordinated basis.
46. As part of the September 1st Amendment, Alliance
also filed as exhibits a press release dated September 1, 1995,
commitment letters from Foothill Capital Corporation, Canpartners
Investments IV, LLC and Cerberus Partners, L.P., fee letters from
Canyon Capital Management, L.P. and Cerberus Partners, L.P. and a
letter dated September 1, 1995 from Alliance to the stockholders
of Bally Gaming. The press release and the letter to Bally
Gaming stockholders are thus part of Alliance's Tender Offer and
subject to the rules and regulations governing the same.
47. Among other things, the press release refers to
the terms of the Merger Agreement as being "lower value, more
conditional and less timely" than the Alliance Tender Offer.
48. The Alliance September 1, 1995 letter to Bally
Gaming stockholders states, in pertinent part:
Furthermore, we anticipate obtaining all regulatory
approvals required to close our tender offer by the end of
September . . . and we expect to complete the merger of the
two companies by Thanksgiving.
We believe the table below dramatically shows the
superiority of our offer over the lower-value, more
conditional and less timely WMS proposal embraced by Bally
Gaming's directors:
Alliance WMS
-------- ----
. $12.50 cash offer for 4.4 . WMS stock for all shares;
million shares - $13.00 possible small cash
if Bally Gaming's break- distribution, if any,
up fee arrangement with conditioned on potential
WMS is invalidated; sale of Bally Wulff above
Alliance stock for the a specified price
remainder
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<PAGE>
. Cash tender offer to be . No plan to close before
completed by September January 31, 1996 (as set
29; back-end merger by forth in the WMS - Bally
Thanksgiving Gaming Merger Agreement);
regulatory application
not anticipate to be
heard before November
. Subject only to customary . Conditioned on sale of
conditions Bally Wulff for a set
minimum price
. Back-end exchange ratio . Exchange ratio fixed up
not set until merger, front; Bally stockholders
subject to an appropriate bear the risk of WMS
collar; Bally Gaming stock price fluctuation
stockholders signif-
icantly protected against
Alliance stock price
fluctuations
. Continuous unlimited . Regulatory uncertainty;
Nevada gaming license for received only two-year
25 years limited gaming license
. . . We are primarily a technology-driven company. As
the country's largest gaming device route operator, we own
and operate over 5,700 gaming devices, including our own
highly sophisticated, proprietary machines. This route
generates consistent and strong annual recurring cash flow,
primarily from multi-year contracts with established
businesses in prime locations.
With this stable cash flow as our base, we are very
confident that once we have acquired Bally Gaming we can
quickly and easily achieve an appropriate capital structure
favorable to the long-term growth and profitability of the
combined companies.
* * *
Finally, you should remember that in the announcement
of its initial letter of intent with Bally Gaming, WMS
stated that it would exchange 0.6 of its shares or higher
for each Bally Gaming share. Instead, it lowered its offer.
Other than for our presence, there is no guarantee they
won't do so again.
-13-
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<PAGE>
DEFENDANTS' FALSE AND MISLEADING STATEMENTS
AND OMISSIONS IN THEIR TENDER OFFER MATERIALS
---------------------------------------------
49. Defendants, in seeking to unfairly defeat the
Merger Agreement and acquire control of Bally Gaming by unfair
means, have permitted or caused to be filed and published to
Bally Gaming's stockholders the Alliance Tender Offer and the
amendments thereto, which make untrue statements of material fact
or omit to state material facts necessary to make the statements
made, in light of the circumstances under which they are made,
not misleading. Defendants have also publicly disseminated press
releases, letters and made other regulatory filings which contain
untrue statements of material fact or omit to state material
facts necessary to make the statements made, in light of the
circumstances under which they are made, not misleading.
50. Upon information and belief, the individual
defendants authorized, directed and participated in the making of
such untrue statements of material fact or in omitting to state
material facts necessary to make the statements made, in light of
the circumstances under which they are made, not misleading.
51. Upon information and belief, John Does 1-5 autho-
rized, directed and participated in the making of such untrue
statements of material fact or in omitting to state material
facts necessary to make the statements made, in light of the
circumstances under which they are made, not misleading.
Alliance's Failure To Disclose Its Intentions
---------------------------------------------
52. In its July 25th press release, Alliance had
announced that it intended to nominate a slate of independent
directors to replace a majority of Bally Gaming's Board of
Directors at the next Bally Gaming annual meeting if Alliance did
not gain due diligence information regarding Bally Gaming.
Consistent with this approach, at the July 27th court appearance
referred to in paragraph 35 above, Alliance sought to obtain a
judicial order requiring an early meeting of Bally Gaming's
stockholders for the purpose of holding elections for Bally
Gaming's Board of Directors.
53. On or about July 31, 1995, it was reported in
Mergers & Acquisition Report, that Alliance intended to nominate
four people for seats on Bally Gaming's seven member Board of
Directors and, if it succeeds, to put Bally Gaming up for sale to
the highest bidder.
-14-
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<PAGE>
54. Notwithstanding these facts, the Alliance Tender
Offer did not disclose that it was Alliance's intention to wage a
proxy battle rather than follow through toward completion of
Alliance's Tender Offer.
55. The August 8th Alliance press release announced an
intention to conduct a consent solicitation to elect a majority
of "independent" directors to the Bally Gaming Board of
Directors.
56. The September 1st Amendment states that "Alliance
does not currently intend to proceed with its consent solicita-
tion . . . . However, Alliance is prepared to pursue its consent
solicitation . . . if they [Bally Gaming directors] continue to
oppose the (Alliance Tender] Offer."
57. The Alliance Tender Offer is misleading because it
is inconsistent with Alliance's public announcements and does not
inform Bally Gaming's stockholders whether or not Alliance will
conduct a consent solicitation, a proxy contest, both or neither.
58. Alliance states in the September 1st Amendment
that "Alliance intends to recapitalize the combined companies
promptly following the consummation of the proposed merger."
This statement is misleading because it does not disclose how
Alliance intends to effect such recapitalization. Among other
things, the September 1st Amendment does not disclose whether
Alliance proposes to modify the terms of existing financing,
issue additional shares of stock thereby further diluting the
value of the outstanding shares of common stock of the merged
entities and/or sell off parts of the combined companies, such as
the German operation known as Bally Wulff.
59. Alliance's representation of its intended
recapitalization is further misleading because it does not set
forth the reasons for such recapitalization and its effect on the
public shareholders. Among other things, Alliance fails to
disclose that, upon information and belief, Alliance could not
effectively operate the combined companies as a going concern
after the proposed merger because of the magnitude of the debt
obligations to be assumed by the combined companies. The
Alliance Tender Offer is therefore misleading by omitting facts
necessary to inform Bally Gaming stockholders of the reason for
the need to recapitalize.
60. The Alliance Tender Offer fails to disclose
Alliance's intentions with respect to the refinancing of $40
million in Bally Gaming debt to FMR Corp. ("FMR"), described in
paragraph 78 below, that is likely to become due by reason of the
closing of the Alliance Tender Offer.
-15-
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<PAGE>
61. The Alliance Tender Offer further fails to
disclose Alliance's intentions with respect to refinancing of
other Bally Gaming lines of credit which will become due upon a
change in control of Bally Gaming, which lines of credit as of
June 30, 1995 were at least $13 million.
62. Moreover, the September 1st letter from Alliance
to Bally Gaming stockholders discloses that "with this stable
cash flow [referring to the cash flow from its gaming device
routes] as our base, we are very confident that once we have
acquired Bally Gaming, we can quickly and easily achieve an
appropriate capital structure." This statement is misleading
because it omits to provide any basis for the purported
"confidence" that such capital structure can be achieved "quickly
and easily." The reference to a stable cash flow is
insufficient: first, because such cash flow is not quantified;
and second, because it is completely unexplained how the cash
flow from Alliance's route operation can support a recapitali-
zation of a merged company when it has been unable to support
Alliance alone, which had net losses of $4.7 million, $3.6
million and $13.1 million, respectively, for fiscal years 1992,
1993 and 1994.
63. Bally Gaming stockholders are thereby being misled
into tendering their shares to Alliance without being apprised of
Alliance's true intentions.
Alliance's Failure To Disclose The Rejection
Of Its Offer By the Board of Directors of
Bally Gaming
--------------------------------------------
64. The Alliance Tender Offer fails to disclose the
material fact that on June 21, 1995, Bally Gaming's Board of
Directors met and after extensive analysis of both the WMS offer
and the Alliance June 19th offer, and with the advice of Bally
Gaming's experts (including a fairness opinion with respect to
the WMS proposal), the Bally Gaming Board of Directors decided
that the WMS proposal was superior to the Alliance proposal,
financially and otherwise, in the better interest of Bally Gaming
stockholders, approved the Merger Agreement with WMS, recommended
that the Merger Agreement and the other transactions contemplated
thereby be submitted to Bally Gaming's stockholders for their
approval, and thereby rejected the Alliance proposal.
65. The Alliance Tender Offer also fails to disclose
the results of the August 7, 1995 Bally Gaming Board of Directors
meeting which rejected the Alliance Tender Offer as inferior to
the WMS transaction.
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<PAGE>
66. By reason of the foregoing, the Alliance September
1, 1995 letter to Bally Gaming stockholders, which is part of the
Alliance tender offer, is misleading because it omits to advise
the Bally Gaming stockholders of the findings of the Bally Gaming
Board of Directors, a fact necessary to make the comparison of
the Alliance and WMS transactions in such letter not misleading.
Alliance's Omission Of Adequate Financial Disclosure
----------------------------------------------------
67. The absence of adequate financial disclosure in
the Alliance Tender Offer makes it impossible for Bally Gaming's
stockholders to evaluate the value of Alliance stock to be issued
in the back-end merger contemplated in the Alliance Tender Offer.
68. Among other things, the Alliance Tender Offer
fails to provide material pro forma financial information
required to inform Bally Gaming stockholders of the financial
condition of a combined Alliance-Bally Gaming business after
giving effect to the proposed Alliance transaction.
69. The Alliance Tender Offer further fails to
disclose the adverse financial effect on the combined Alliance-
Bally business of the extraordinary financial fees to be incurred
by Alliance, including the fees for the financing required to pay
for the tender offer, which alone appears to amount to
approximately $12 million.
70. The omission of such disclosure is material
because such pro forma financial information would show a
combined company with approximately $235 million of indebtedness
and would clearly demonstrate that the combined company would
not, on a pro forma historical basis, have the combined cash flow
sufficient to service its debt. The material nature of such
omission is further demonstrated by Alliance's statement in the
September 1st Amendment that it "intends to recapitalize . . .
promptly following the consummation of the Proposed Merger."
71. The Alliance Tender Offer omits material
information relating to the proposed unspecified "appropriate
collar" to be applied to the valuation of Alliance common stock
in the back-end merger. No information is provided as to the
details or range of the collar. Consequently, Bally Gaming's
stockholders cannot determine whether the collar provides any
meaningful protection or whether it is illusory. Among other
things, the Alliance Tender Offer fails to disclose that the
Bally Gaming stockholders could be left with then illiquid Bally
Gaming stock should the back-end merger not be completed because
the price falls below the appropriate but unspecified collar.
-17-
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<PAGE>
72. The Alliance Tender Offer represents that the
Alliance common stock to be issued for the back-end merger will
be valued at an average price for ten (10) trading days ending
five (5) days prior to the consummation of a proposed merger, and
misleadingly implies that such valuation will result in the back-
end merger being completed with Alliance common stock valued at
$12.50. However, the Alliance Tender Offer fails to disclose
that the value of its stock could fluctuate substantially in the
five day period immediately preceding the consummation of the
proposed merger (as often happens) when adjustments to the
exchange ratio would not be protected by a collar, to the
detriment of Bally Gaming stockholders.
73. The Alliance Tender Offer fails to inform Bally
Gaming stockholders that the number of shares which Alliance will
have to issue to Bally Gaming stockholders will more than double
the number of shares of outstanding Alliance common stock and
could result in substantial dilution with a substantial negative
impact on the market price of said shares.
74. The Alliance Tender Offer fails to disclose the
dilution of Alliance's common stock and the consequent effect on
the market value of Alliance's common stock which would result
from the issuance of additional shares of Alliance's common stock
upon the exercise of existing Alliance options and warrants.
Specifically, the Alliance Tender Offer fails to disclose that
such exercise of existing options, warrants and convertible debt
could result in the issuance of approximately sixteen million
(16,000,000) additional Alliance shares. When compared to
approximately eleven million (11,000,000) shares currently out-
standing, it is material that the substantial resulting dilution
is not disclosed.
75. The September 1st Amendment discloses that
warrants for 500,000 shares of Alliance's common stock are to be
received by certain of the lenders financing the Alliance Tender
Offer. The Alliance Tender Offer is misleading in that it omits
to disclose the fact that the issuance of such warrants will,
upon exercise, dilute Alliance's common stock, and further fails
to disclose the effect of this dilution on the value of
Alliance's common stock.
76. The Alliance Tender Offer fails to disclose that
the trading market for Alliance common stock is very thin and
that the additional shares issuable in the back-end merger will
likely create a market overhang that will have a severe
depressing effect on the trading price of Alliance stock.
Accordingly, regardless of the exchange ratio set by reason of
the proposed collar, it will be a ratio based on the pre-merger
-18-
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<PAGE>
thin market for Alliance stock. The actual price at which Bally
Gaming stockholders could sell Alliance shares after the back-end
merger will likely be far less than the value for Alliance shares
established by the formal exchange ratio, a material fact not
disclosed by the Alliance Tender Offer.
77. Alliance fails to offer any opinion of an
investment banker that its proposed two step transaction would be
fair to Bally Gaming stockholders. Indeed, as set forth in
paragraph 34 above, Bally Gaming's independent investment
advisor, Ladenburg, has advised Bally Gaming that it could not
render an opinion that the two step Alliance transaction was fair
from a financial point of view to Bally Gaming stockholders.
Accordingly, it is a material omission that the Alliance Tender
Offer fails to disclose that the proposal does not meet the
minimum standards for fairness from a financial point of view to
Bally Gaming stockholders.
78. Upon information and belief, FMR is a lender to
Bally Gaming, in the sum of approximately $40 million. Upon
information and belief, such debt will, at the option of FMR,
become due upon a change in control of Bally Gaming (defined as
the acquisition at any time by any person of ownership of more
than 40% of Bally Gaming common stock). Upon information and
belief, Bally Gaming's other lines of credit will also become due
upon completion of the Alliance Tender Offer. The Alliance
Tender Offer fails to disclose these facts and that the closing
of the Alliance Tender Offer may require Bally Gaming to repay
said $40 million debt obligation to FMR and will require the
repayment of Bally Gaming's lines of credit in the amount of at
least $13 million.
79. The September 1st Amendment discloses that the
interest on the $30 million portion of the financing for the
Alliance Tender Offer from Canpartners and Cerberus will be 18%
per annum over the two year life of such financing. This
statement of interest is misleading because the fee letters from
Canyon and Cerberus annexed as exhibits to the amendment require,
among other fees, a fee of 2 1/2% of the principal amount of the
loan every three months while the loan has not been paid in full.
This amounts to an additional 10% per year, which though
described as a fee, effectively raises the interest rate on the
$30 million portion of the loan to 28%, a fact not disclosed by
Alliance.
-19-
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<PAGE>
Alliance's Failure To Make Material
Disclosures Regarding Its Own
Financial Condition
-----------------------------------
80. The Alliance Tender Offer fails to fully disclose
Alliance's precarious financial condition, insofar as it provides
only "selected consolidated" financial statements without indica-
tion of the specific financial information omitted and without
disclosing the factual details for the conclusory information
provided. For example, no explanation is disclosed for the fact
that Alliance's 1994 losses ($13,128,000) are triple the 1993
losses ($3,650,000). Alliance also fails to disclose how a
company with such increasing and historical losses can reasonably
expect to conclude the subject transaction. Alliance also fails
to disclose how, in view of the fact that its long term debt has
increased over 150% from 1993 ($41,176,000) to 1995
($101,409,000), Alliance can effect the recapitalization set
forth in the September 1st Amendment.
81. The Alliance Tender Offer discloses that the loans
for the Alliance Tender Offer will be secured by substantially
all the assets of Alliance and its subsidiaries. It is material
that the Alliance Tender Offer fails to disclose the impact of
having substantially all assets utilized as security for
financing, particularly for a company engaged in the slot machine
business. Among other things, the Alliance Tender Offer fails to
disclose that such a condition would necessarily impair its
ability to provide customer financing, carry customer receivables
or to engage in the required product development and promotion
necessary in such business.
Alliance's Material Omissions Regarding
The Source And Amount Of Funds
---------------------------------------
82. The September 1st Amendment discloses that
"Alliance intends to recapitalize the combined companies promptly
following the consummation of the proposed merger." Alliance
fails to disclose the source of funds for any such
recapitalization or the status of its efforts to achieve the
same. Both facts are material since it is apparent from
Alliance's own statement that it cannot operate the combined
companies as a going concern without such recapitalization.
83. Prior to the September 1st Amendment, the Alliance
Tender Offer had described a letter from banks as "expressing
interest" in providing a bridge loan facility while the actual
term sheet filed by Alliance with the SEC contained the condition
-20-
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<PAGE>
that permanent financing be satisfactory to said banks as a
condition of funding the bridge facility. Alliance's Tender
Offer failed to disclose the lack of such permanent financing or
the status of efforts to obtain same. In addition, the Alliance
Tender Offer failed to disclose the source of funds for
$20,000,000 in equity financing which Alliance stated it would
likely need as a condition to the bridge loans and also failed to
disclose the status of its efforts to obtain such funds.
Alliance's continuing failure to make full disclosure with
respect to its alleged financing arrangements has not been
remedied by the September 1st Amendment, as alleged in paragraphs
75, 78-79 and 82 above.
Alliance's Failure To Disclose Material
Facts Regarding The Time Of Closing Of
Its Proposed Transaction
---------------------------------------
84. The Alliance Tender Offer fails to disclose that
the consummation of its offer will cause Bally Gaming to breach
its non-competition agreements with Bally Entertainment
Corporation ("Bally Entertainment"), Bally Gaming's former parent
and an important customer of Bally Gaming. The non-competition
agreement prohibits any affiliate of Bally Gaming from owning or
operating casinos anywhere within or without the United States
until after January 8, 1996.
85. The Merger Agreement with WMS contemplates a
closing after January 8, 1996, because WMS owns and operates ho-
tels/casinos, in Puerto Rico, thousands of miles from any casino
owned by Bally Entertainment. The Alliance Tender Offer fails to
disclose that Alliance owns and operates casinos in Nevada, in
close geographic proximity to casinos owned by Bally
Entertainment and that Alliance would be subject to the same
restriction as Bally Gaming, and could therefore not complete the
transaction any earlier than WMS without violating Bally Gaming's
agreement with Bally Entertainment.
86. The Alliance Tender Offer states that its tender
offer can be completed well in advance of the proposed merger
between WMS and Bally Gaming. The Alliance Tender Offer fails to
disclose that an earlier completion of its transaction will cause
Bally Gaming to breach the aforesaid non-competition agreement.
The statement by Alliance in the September 1, 1995 letter to
Bally Gaming stockholders that it "expects to complete the merger
of the two companies by Thanksgiving" is therefore misleading
because it fails to disclose the true facts as to the non-
competition agreement.
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<PAGE>
87. Alliance's assertion that its 51% ownership of
Bally Gaming after the tender offer would not make it an
affiliate of Bally Gaming so as to preclude enforcement of the
non-competition agreement is misleading, since, among other
things, no support or analysis is provided for such conclusion
and no opinion of counsel is included reflecting such unsupported
conclusion. Accordingly, Bally Gaming stockholders who are being
solicited to tender their shares to Alliance are not provided
with any basis for evaluating such conclusion.
88. The Alliance Tender Offer also states that
Alliance believes that enforcement of the covenant against Bally
Gaming in respect of Alliance's casino operations would be
"unreasonable and contrary to the public interest." This
assertion is likewise misleading, since no basis for such
assertion is set forth and Bally Gaming's stockholders are not
provided with any support necessary to evaluate the validity of
such conclusory assertion. The Alliance Tender Offer in this
respect omits material facts regarding the reasons for the
possible difference in the timing of the closing of the two
transactions and the risks inherent in the approach Alliance has
adopted.
Alliance's Failures To Disclose Material
Facts Regarding The WMS Merger
----------------------------------------
89. The claims in the Alliance Tender Offer that
Alliance's proposed transaction is superior to the WMS Merger
Agreement are false and misleading because objective analysis of
the components of the two competing transactions shows that the
WMS Merger Agreement is superior to Alliance's proposed
transaction, and Bally Gaming's financial advisors have so
concluded.
90. The Alliance Tender Offer fails to disclose that
the WMS price is higher than the price being offered by Alliance.
The Alliance Tender Offer states that it is offering $12.50 per
share. However, the Alliance Tender Offer fails to disclose that
the WMS merger transaction, taking into account both the value of
the WMS shares being offered and the additional payment to
stockholders from the proposed sale of Bally Gaming's German
operations, has a value to Bally Gaming's stockholders which
exceeds $12.50 per Bally Gaming share in value. Indeed, as of
September 5, 1995, the closing price of WMS common stock on the
New York Stock Exchange was $23.50 per share and the value of the
Merger Agreement for each share of Bally Gaming stock is
approximately $13.37.
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<PAGE>
91. The Alliance Tender Offer further fails to
disclose that notwithstanding its characterization of its offer
as $12.50 a share, its two-step offer for all of the Bally Gaming
shares is substantially less in view of the uncertain nature of
the back-end merger and the precarious financial condition of
Alliance.
92. Although the Alliance Tender Offer discloses that
its proposed transaction is a taxable event to Bally Gaming
stockholders, the Alliance Tender Offer fails to disclose that
the WMS Merger Agreement provides a tax free transaction to Bally
Gaming stockholders.
93. The Alliance Tender Offer fails to disclose that
the fact that the WMS transaction involves no up front cash is
irrelevant, inasmuch as Bally Gaming stockholders who receive the
highly liquid WMS common stock could sell them to obtain cash if
desired, much more easily than they will be able to sell Alliance
common stock received in the back-end merger given the thinness
of the trading market for Alliance common stock, the undisclosed
dilution in such common stock, and the precarious financial
condition of Alliance.
94. The Alliance Tender Offer's disclosure regarding
the break-up fee in the WMS Merger Agreement omits material facts
necessary to make Alliance's statements not misleading. The
Alliance Tender Offer fails to disclose that the break-up fees in
the Merger Agreement are reciprocal and that, under certain
circumstances, it is Bally Gaming rather than WMS which would
receive the break-up fee. The Alliance Tender Offer also fails
to disclose the material fact that the break-up fees are well
within the reasonable range of break-up fees for other
transactions of approximately the size of the WMS/Bally Gaming
transaction.
Additional Misleading Statements in Alliance's
September 1, 1995 Letter to Bally Gaming Stockholders
-----------------------------------------------------
95. Alliance's September 1, 1995 letter to Bally
Gaming stockholders has been made part of the Alliance Tender
Offer by being filed by Alliance with the September 1st
Amendment.
96. There are at least the following untrue and/or
misleading statements in the September 1 letter:
(a) The WMS proposal is not "lower value" than
the Alliance proposal, for the reasons set forth in paragraph 90
above. Alliance's failure to disclose the true facts regarding
the WMS proposal is therefore misleading.
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(b) Alliance's statement that its back-end merger
can be completed by Thanksgiving is untrue for the reasons set
forth in paragraphs 84-88 above.
(c) Alliance's statement that WMS received only a
two-year limited gaming license in Nevada and that such license
is probationary is untrue. The WMS license is not probationary
and is not limited. It is a full license to operate for a period
of two years.
(d) Alliance describes itself as a "technology
driven company." Such a statement is misleading because it fails
to disclose the nature or significance of such technology. Its
statement that it has "highly sophisticated, proprietary
machines" is not sufficient to inform Bally Gaming stockholders
as to whether Alliance possesses the requisite technology to
develop new machines in an ever-changing field. In fact, in its
10-K filed with the SEC on September 28, 1994, Alliance stated
that "the manufacturing process generally involves the assembly
of standard components which are readily available from various
sources." Nor does Alliance disclose the extent of past market
acceptance of its products and the impact of the same on further
development. The Alliance Tender Offer fails to disclose that
Alliance is in fact primarily a gaming machine route operator and
manager of casinos and gaming arcades.
(e) Alliance's statements regarding confidence
about achieving an appropriate capital structure are misleading
for the reasons set forth in paragraphs 58-59 and 82 above.
(f) Alliance's statement that WMS could reduce
the number of shares it is offering is false because WMS has a
contract to purchase Bally Gaming shares at .55 shares of WMS
stock.
(g) Alliance's statement that not setting the
back-end exchange ratio until the merger is an advantage over the
WMS merger is not true because (i) WMS stock has been rising in
value, (ii) Alliance stock will likely have a low value upon the
occurrence of the Alliance proposed merger, (iii) there are
problems associated with the proposed Alliance collar and the
dilution that will occur with the issuance of new Alliance
shares, and (iv) the risk to Bally Gaming shareholders that no
back-end merger would take place or that it will be different
than the one presently proposed.
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<PAGE>
Defendants Failed To Disclose Material Facts
Regarding Prior Negotiations With Bally Gaming
----------------------------------------------
97. The Alliance Tender Offer falsely represents that
Alliance's first meetings with Bally Gaming began in October
1994. However, the Alliance Tender Offer omits to disclose the
material fact that the initial meetings were actually held in
November 1993, almost one year earlier. The Alliance Tender
Offer therefore fails to disclose the material fact that Alliance
has had a substantial opportunity to attempt to negotiate a
transaction with Bally Gaming and failed to demonstrate to the
satisfaction of Bally Gaming's Board of Directors that its offer
was in the best interests of Bally Gaming stockholders.
98. As set forth in paragraph 14 above, the Alliance
Tender Offer fails to disclose that it was Alliance who declined
to execute a requested confidentiality and standstill agreement
with Bally Gaming. The Alliance Tender Offer also fails to
disclose that the Delaware Chancery Court has twice rejected
Alliance's request for Bally Gaming due diligence information on
the ground of failure to show any legal entitlement thereto.
99. The Alliance Tender Offer fails to disclose that
at one point in its negotiations with Bally Gaming, Alliance's
representatives shook hands on a deal with Bally Gaming that
involved a price of $13.00 per Bally Gaming share, plus an equity
investment of $50 million, only to advise Bally Gaming the
following day that Alliance was not prepared to commit itself to
such an investment.
100. The Alliance Tender Offer fails to disclose that
Alliance informed Bally Gaming at one point that it had two banks
lined up to finance a transaction, but refused to name them,
unless Bally Gaming agreed to pay Alliance $700,000 in the event
no transaction occurred.
Alliance's Failure To Disclose Its
Non-Entitlement To Bally Gaming's
Due Diligence Material
----------------------------------
101. The Alliance Tender Offer falsely represents that
Bally Gaming declined to execute a confidentiality and standstill
agreement. In fact, upon information and belief, it was Alliance
which refused to execute the confidentiality and standstill
agreement which agreement was also offered to WMS by Bally Gaming
and executed by WMS.
-25-
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<PAGE>
102. On August 11, 1995, the Delaware Chancery Court
found that Alliance did not obtain access to the due diligence
material of Bally Gaming because it "refused to sign an agreement
substantially identical to that signed by WMS" and that "WMS and
Alliance were both offered access to Bally's due diligence
materials on the condition that they sign a standard
confidentiality and standstill agreement" which "Alliance refused
to sign."
Alliance's Tender Offer is false and misleading in
creating the impression that Alliance had legal entitlement to
such due diligence material and in failing to disclose that
Alliance's inability to obtain such non-public information of
Bally Gaming was due to Alliance's own refusal to execute Bally
Gaming's proffered confidentiality and standstill agreement.
104. The Alliance Tender Offer misleadingly states
that, in reliance on an opinion of counsel, Bally Gaming's
provision of due diligence material to Alliance would not violate
the Merger Agreement. Defendants omit the disclosure of material
facts necessary to make their statement not misleading, to wit,
they fail to disclose that providing such non-public information
to Alliance would materially breach the Merger Agreement, in view
of the rejection of the Alliance Tender Offer by Bally Gaming's
Board of Directors and the determination of Bally Gaming's Board
of Directors that the WMS transaction was superior. In addition,
Alliance fails to disclose that such opinion is merely a general
opinion and does not address the relevant facts and contract
provisions of the Merger Agreement.
Defendants, Failure To Make Material
Disclosures Regarding Contingencies
------------------------------------
105. The Alliance Tender Offer refers to "contingencies
of the proposed combination" but fails to disclose any material
facts and the triggering events so as to enable Bally Gaming
stockholders to evaluate the likelihood of such contingencies in
their assessment of the Alliance Tender Offer. Defendants state:
The precise timing and other details of any merger or other
business combination transaction will depend on a variety of
factors such as general economic conditions and prospects,
the future prospects, asset value and earnings of the
Company [Bally Gaming], the number of Shares acquired by the
Purchaser pursuant to the Offer or otherwise, the receipt of
the necessary approvals or consents of gaming regulators and
the statutory requirements described above. The Purchaser
can give no assurance that a merger or other business
combination will be proposed or that, if it is proposed, it
-26-
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<PAGE>
will not be delayed or abandoned. The Purchaser expressly
reserves the right not to Propose any merger or similar
business combination involving the Company [Bally Gaming],
or to propose a merger or other business combination on
terms other than those set forth herein, and its ultimate
decision could be affected by information hereafter obtained
by the Purchaser, changes in general economic or market
conditions or in the business of the Company [Bally Gaming]
or other factors.
(emphasis added). The Alliance Tender Offer fails to disclose
that the offer is therefore so contingent that it is really no
offer or promise to do anything at all. Indeed, the Alliance
Tender Offer is so contingent that it is materially misleading to
make it appear to be a genuine offer.
106. The Alliance Tender Offer states that "depending
upon a number of factors, Alliance may consider substituting cash
in an amount equal to the offer price for some or all of the
proposed merger consideration of Alliance common stock." The
Alliance Tender Offer fails to disclose what factors might prompt
such substitution, the source of such cash, and the likelihood
that such cash will be available.
107. The Alliance Tender Offer's repeated references to
$12.50 as the value of the consideration on the back-end merger
is false and misleading in creating and attempting to create the
impression that such figure represents the sum of market value of
the equity securities and/or cash per Bally Gaming share to be
exchanged on the back-end merger. In fact, in view of the all
the defendants' stated contingencies there can be no assurance in
regard to the market value or attractiveness of such securities
to the investing public.
Defendants' Failure To Disclose A Controlling
Person - Richard Rainwater
---------------------------------------------
108. The Alliance Tender Offer fails to disclose the
existence of Richard Rainwater ("Rainwater") as a controlling
person of Alliance. Upon information and belief, Kirkland-Fort
Worth Investment Partners, L.P. ("Kirkland-Forth Worth") owns or
controls approximately 11% of Alliance's shares, as a result of a
September 1993 investment of $5 million in exchange for 1.3
million shares of non-voting junior convertible special stock and
warrants for the purchase of 2.75 million shares of common stock
at $1.50 a share. Upon the exercise of such warrants, Kirkland-
Fort Worth will own approximately 26% of the total shares
outstanding of Alliance.
-27-
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<PAGE>
109. Upon information and belief, Rainwater, his adult
children and their trusts own approximately a 40% interest in
Kirkland-Fort Worth. As a result of the foregoing, and the
active role of Rainwater with respect to Alliance as set forth
below, Rainwater is a controlling person of Kirkland-Fort Worth
and through that entity, a controlling person of Alliance.
110. Rainwater is a well known investment analyst or
investor having run investment portfolios for a number of large
entities. Upon information and belief, his investments include a
stake in the Texas Rangers baseball team and an interest in
Columbia/RCA Health Care Corp. He is known in the financial
community as the man who assisted the Bass family in obtaining a
25% stake in Walt Disney Co. and was active in the successful
gubernatorial campaign of George W. Bush, son of the former
President.
111. Upon information and belief, Rainwater is the
person upon whom the financial community is relying in connection
with the Alliance Tender Offer and without whose investment and
reputation the Alliance Tender Offer would not be possible.
112. Upon information and belief, Rainwater took a
leading role on behalf of Alliance in the negotiations between
Alliance and Bally Gaming which commenced in November 1993, and
led off the presentations made to representatives and directors
of Bally Gaming.
113. The Alliance Tender Offer fails to disclose that,
upon information and belief, the conditions on the license
granted to Alliance by the Nevada Gaming Commission set forth in
the eighth revised order of registration entered on February 23,
1995, prohibit Rainwater from any involvement in the management
of Alliance, which would include conducting such negotiations
with Bally Gaming without prior approval of the Nevada Gaming
authorities. Upon information and belief, such approval has not
been requested or obtained.
114. The Alliance Tender Offer fails to disclose that,
upon information and belief, Rainwater's participation in the
conduct of such negotiations in Alliance's efforts to acquire
Bally Gaming could jeopardize Alliance's (a) ability to obtain
regulatory approval from Nevada authorities of the proposed
Alliance-Bally Gaming merger, (b) jeopardize Nevada gaming
licenses and thereby (c) jeopardize Alliance's ability to remain
in business.
115. The Alliance Tender Offer fails to disclose that
Rainwater is not presently licensed as a controlling person of
Alliance and that if the Nevada Gaming authorities requested that
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<PAGE>
he be licensed as a controlling person and he refused, it would
jeopardize Alliance's licenses. The Alliance Tender Offer also
fails to disclose that if Rainwater agreed to be licensed as a
controlling person it could delay regulatory approval of the Al-
liance transaction.
116. The Alliance Tender Offer's failure to disclose
the foregoing matters regarding Rainwater represents material
omissions which make the offer to purchase misleading.
Other Public False and Misleading
Statements by Defendants
---------------------------------
117. The August 8, 1995 letter from Alliance Gaming to
Bally Gaming stockholders announcing the consent solicitation to
replace a majority of Bally Gaming's Board of Directors with
"independent directors" is an integral part of the Alliance
Tender Offer scheme and repeats and reinforces the false and
misleading statements in the Alliance Tender Offer and is false
and misleading in at least the respects set forth in paragraphs
52-54, 83, 89-94, 98, 101 and 108-116 hereof.
118. The preliminary consent statement filed by
Alliance with the SEC on August 8, 1995 is an integral part of
the Alliance Tender Offer scheme and repeats and reinforces the
false and misleading statements in the Alliance Tender Offer and
is false and misleading in at least the respects set forth in
paragraphs 52-54, 64-65, 67-74, 76-78, 80-81, 84-94, 97-116
hereof.
119. The August 8, 1995 press release from Alliance is
an integral part of the Alliance Tender Offer scheme and repeats
and reinforces the false and misleading statements in the
Alliance Tender Offer and is false and misleading in at least the
respects set forth in paragraphs 52-54, 89-94, 98, 101 and 108-
116 hereof.
IRREPARABLE HARM
----------------
120. Defendants' course of conduct constitutes a
fraudulent, deceptive and manipulative act or practice in
connection with a tender offer, in violation of Section 14(e) of
the 1934 Act.
121. The Alliance Tender Offer omits material
information and contains misstatements, such that the stock-
holders of Bally Gaming will be misled, in violation of Section
14(e) of the 1934 Act. Such omissions and misstatements do and
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<PAGE>
will irreparably harm WMS by causing the stockholders of Bally
Gaming to consider an incomplete and misleading offer in
competition with the Merger Agreement and to the possible
detriment and/or defeat of the Merger Agreement.
122. Defendants' course of conduct as alleged herein
has injured WMS and the stockholders of Bally Gaming and, unless
enjoined, defendants, conduct will continue to inflict upon WMS
and Bally Gaming stockholders irreparable injury for which
neither WMS nor the Bally Gaming stockholders has an adequate
remedy at law.
123. Unless enjoined, defendants will proceed with the
competing offer without having given Bally Gaming stockholders
all the information concerning the Alliance common stock required
by law which would enable those stockholders to make an informed
investment decision between the hostile offer and the WMS Merger
Agreement.
124. Bally Gaming stockholders have been and are
threatened with irreparable injury because they are being forced
to make an investment decision with respect to the Alliance
Tender Offer and the Merger Agreement, without having the
information about the Alliance Tender Offer required by law.
Bally Gaming stockholders may thus make a decision which is not
in their best interests based upon the misleading statements in
the Alliance Tender Offer.
125. Moreover, WMS has been and will continue to be
irreparably injured because its Merger Agreement must compete
with an unregistered offering of securities and cash; the hostile
offer requires an evaluation of a package which includes the
equity securities as to which the investing public is deprived of
required information and terms in violation of the requirements
of the federal securities laws. WMS's interest in proceeding
with its offer and having its offer evaluated on the merits and
against the hostile offer may thus be defeated and will be
unfairly damaged unless defendants are required to comply with
the law.
126. Injunctive relief is necessary to preserve the
status quo. If the Alliance Tender Offer is not enjoined, and
Alliance completes both the tender offer and the subsequent back-
end merger, Bally Gaming will become part of Alliance or of BAC.
It will then cease existence as a separate entity. Injunctive
relief is necessary so that such a position is not reached as a
result of defendants' illegal actions.
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<PAGE>
COUNT I
-------
(For violations of Section 14(e) of the 1934 Act)
127. Repeats and realleges paragraphs 1 through 126
hereof as if the same were set forth at length hereat.
128. Section 14 (e) of the 1934 Act prohibits untrue
statements of material fact or the omission of facts which are
necessary to make the facts therein not misleading in connection
with a tender offer.
129. The above-stated misstatements and omissions of
facts are material to any evaluation by Bally Gaming's
stockholders with respect to the Alliance Tender Offer and the
Merger Agreement.
130. Plaintiff will suffer irreparable harm unless
defendants are enjoined from continuing with their misleading
tender offer and ordered to comply with Section 14(e) of the 1934
Act and all SEC rules and regulations promulgated thereunder.
The nature of the harm is that defendants have provided
materially misleading and incomplete information to Bally Gaming
stockholders in connection with a hostile offer intended to
defeat WMS's Merger Agreement. The Merger Agreement with WMS may
be nullified by defendants' unlawful acts. Any Bally Gaming
stockholders that decide to tender their shares to Alliance
absent full disclosure by Alliance and given the material
misrepresentations that currently exist in the Alliance Tender
Offer materials will be misled to their detriment, to Bally
Gaming's detriment and to the detriment of WMS. The result of
the so-called back-end merger will be the disappearance of Bally
Gaming as a separate entity.
131. By reason of the foregoing, defendants have
violated and continue to violate Section 14(e) of the 1934 Act.
132. Issuance of a preliminary injunction would not
cause substantial harm to others because it would merely prevent
anyone from relying on Alliance's faulty and erroneous documents.
The public interest would be served by issuing the preliminary
injunction.
Plaintiff has no adequate remedy at law.
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<PAGE>
COUNT II
--------
(For Violation of Section 14(d) of the 1934 Act)
134. Repeats and realleges paragraphs 1 through 126
hereof as if the same were set forth at length hereat.
135. Section 14(d) of the 1934 Act requires that tender
offerors like Alliance file with the SEC a statement containing
the information required by SEC Rules. Rule 14d-100 sets forth
the information to be fully and accurately provided, including
"such additional material information as may be necessary to make
the required statements, in light of the circumstances in which
they are made, not materially misleading."
136. By reason of the above-stated misstatements and
omissions of material facts, defendants have violated and
continue to violate section 14(d) of the 1934 Act.
137. Plaintiff will suffer irreparable harm as set
forth above.
138. Issuance of a preliminary injunction would not
cause substantial harm to others because it would merely prevent
anyone from relying on Alliance's faulty and erroneous documents.
The public interest would be served by issuing the preliminary
injunction.
139. Plaintiff has no adequate remedy at law.
COUNT III
---------
(Tortious Interference With A Contract)
140. Repeats and realleges paragraphs 1 through 126
hereof as if the same were set forth at length hereat.
141. By the statements in the Alliance Tender Offer
defendants, among other things, urge Bally Gaming to breach the
Merger Agreement made with WMS.
142. The statements in the Alliance Tender Offer to the
effect that granting Alliance due diligence would not breach the
Merger Agreement are dishonest, unfair, fraudulent and deceitful.
143. But for Alliance's actions, no such breach would
occur.
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144. Defendants' actions are tortiously interfering
with the Merger Agreement, of which defendants are and have been
aware.
145. WMS has been damaged by said tortious interference
in an amount to be determined at trial.
COUNT IV
--------
(Tortious Interference With Prospective Advantage)
146. Repeats and realleges paragraphs 1 through 126
hereof as if the same were set forth at length hereat.
147. Defendants' course of conduct, as alleged in this
complaint, constitutes an unlawful interference with WMS's
prospective economic commercial advantage and its opportunity to
compete and to complete the Merger Agreement negotiated by and
between Bally Gaming and WMS, in violation of applicable state
and common law.
148. WMS is entitled to damages in an amount to be
determined at trial.
WHEREFORE, plaintiff demands judgment as follows:
(1) Enjoining and restraining defendants, their
agents and employees and those acting in concert with them,
permanently and during the pendency of this action, from directly
or indirectly:
(a) Acquiring or attempting to acquire any Bally,
Gaming securities;
(b) Continuing their present offer and making any
further offers for, or requests or invitations for, tender of
Bally Gaming securities;
(c) Soliciting or arranging for the solicitation
of offers to buy Bally Gaming securities;
(d) Making any further public announcements
concerning offers to acquire Bally Gaming securities;
(e) Voting in person or by proxy any Bally Gaming
securities;
(f) Otherwise utilizing or attempting to utilize
Bally Gaming securities as a means of controlling or affecting
the management of Bally Gaming;
<PAGE> -33-
(g) Taking any steps to merge or otherwise effect
a combination of Bally Gaming and Alliance or any subsidiary or
affiliate of any of them;
(h) Exercising or attempting to exercise,
directly or indirectly, any influence in the management of Bally
Gaming;
(i) Taking any steps in furtherance of their
unlawful plan to acquire control of Bally Gaming until defendants
correct the misstatements and omissions detailed herein which may
mislead Bally Gaming stockholders and conducts said offer in ac-
cordance with the law.
(2) Preliminarily and permanently enjoining defendants
from interfering with or otherwise disrupting the Merger
Agreement by and between WMS and Bally Gaming.
(3) Preliminarily and permanently enjoining defendants
from violating the 1934 Act in connection with the Merger
Agreement and the Alliance Tender Offer, and from failing to
disclose material facts necessary to make prior announcements not
misleading.
(4) Compelling defendants' to take corrective steps to
rectify and cure the effects of its manipulative and fraudulent
actions.
(5) Granting WMS such judgment for damages and costs,
including reasonable attorneys' fees as it has sustained or shall
sustain as a result of the aforesaid violations of law.
(6) Awarding such other and further relief as this
Court deems just and proper.
Dated: New York, New York
September 6, 1995
BURNS HANDLER & BURNS LLP
By:_________________________
Arthur M. Handler (AH 0693)
Attorneys for Plaintiff
WMS Industries Inc.
220 East 42nd Street
Suite 3000
New York, New York 10017
(212) 687-1300
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<PAGE>
Arthur M. Handler (AH 0693)
BURNS HANDLER & BURNS LLP
Attorneys for Plaintiff
220 East 42nd Street, Suite 3000
New York, New York 10017
(212) 687-1300
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - X
:
WMS INDUSTRIES INC.,
:
Plaintiff, GENERAL RULE 9
: STATEMENT
- against -
:
ALLIANCE GAMING CORPORATION,
BGII ACQUISITION CORP., JOEL : 95 Civ. ____ (___)
KIRSCHBAUM, STEVEN GREATHOUSE,
ANTHONY L. DICESARE, CRAIG :
FIELDS, DAVID ROBBINS, ALFRED
W. WILMS AND JOHN DOES 1-5. :
Defendants. :
- - - - - - - - - - - - - - - - - X
Pursuant to General Rule 9 of the rules of this Court,
plaintiff WMS Industries Inc. hereby identifies any corporate
parents, subsidiaries or affiliates of said parties which are
publicly held as follows: not applicable.
Dated: New York, New York
September 6, 1995
BURNS HANDLER & BURNS LLP
By:___________________________
Arthur M. Handler (AH0693)
Attorneys for Plaintiff
WMS Industries Inc.
220 East 42nd Street
Suite 3000
New York, New York 10017
(212) 687-1300
<PAGE>
